Personal loans are loans extended to individuals for a set amount which is to be repaid over a fixed term. They are often used to consolidate debt or to pay for an emergency, funeral, wedding or big move. When you don’t have the money on hand to afford something in your life, they can come in handy.
However, of course, personal loans are not free. You will have to pay interest and possibly fees on the money you borrow, so it’s important to find a loan that is competitive. Not sure where to look? Here’s a step-by-step guide that will not only show you how to get a personal loan but how to get the best one available to you.
How to get a personal loan
When you’re ready to get a personal loan, here’s how to figure out your options and narrow it down to “the one.”
1. Identify what you need
First, how much money do you need? Think about why you are borrowing the money and how much it will cost. You don’t want to borrow too little and not be able to accomplish your goal. However, you also don’t want to borrow more than you need as it will increase your costs. So do the math and figure out what loan amount you want.
Also, think about how long it will take you to pay the loan back. Look at your budget to see how much you can afford to repay each month and how many months repayment of the loan amount will take. One year? Two years? Five years? The faster you can pay it off, the better, as it will save you in interest costs.
Once you know the basics of what you need, you’re ready to start shopping around.
2. Shop around
Browse personal loan lenders to find those with offerings that meet your needs. For example, SoFi is a lender that offers loans from $5,000 to $100,000 with terms from 24 to 84 months. OppLoans is another lender but its loan range from $500 to $4,000 with terms from 9 months to 36 months. If you need to borrow $3,000 with one year for repayment, OppLoans would be a contender but you shouldn’t waste your time with SoFi. On the other hand, if you need $10,000 for 48 months, SoFi would be the better option. Each lender has a range of loan amounts and terms it offers, so make a shortlist of at least five that fit the bill.
Once you have a shortlist, vet the lenders to find out annual percentage rate ranges, fees, customer service quality, additional features and benefits. Rank them from best to worst.
With your ranked list of personal loan providers in hand, it’s time to find out what each lender can actually offer you. A lender may offer the lowest starting APR of all the lenders, but what really matters is what APR you can get. So, apply with at least the top three lenders on your list. Many companies enable you to prequalify online through a soft credit check which doesn’t hurt your credit — a big plus.
4. Compare your options
Now that you have three quotes, it’s time to compare apples to apples. First, can each lender offer you the amount of money and the term you need? Second, what is the total cost of borrowing? Don’t just look at the monthly payment amount; look at the APR, the fees and the total cost over the life of the loan. You want the loan that will cost you as little as possible monthly and overall. Those are the most important factors.
Other secondary things to consider are the company’s service quality, payment flexibility, how easy it is to manage the account, time to funding and other features. Rank the offers from the one that offers the most value to the one that offers the least. If none of the offers are very good, you can return to your shortlist and apply with other lenders you had considered.
5. Complete the application
When you have found the offer that provides you with the most value, all things considered, go back to the lender and complete the official application and origination process. Be sure to read all of the terms and conditions carefully. Then, you will receive your loan amount according to the company’s process.
Different uses for personal loans
Personal loans can be used for pretty much anything. Most lenders don’t place many restrictions on how you can spend the funds (aside from forbidding illegal activities). Below are some of the common ways personal loans are used.
The national average cost of a wedding is $33,931. Many people don’t have that much money lying around but want to pull out all the stops for their big day. While the average personal loan amount is around $8,500, some lenders like SoFi offer loans of $100,000 or more. A personal loan can be the answer engaged couples are looking for.
Personal loans can also offer a way to lower the costs of your outstanding debt and streamline its repayment. If you get approved for a loan amount equal to or greater than the total of your existing debt, with an interest rate that is equal to or lower than your existing cumulative interest rate, you can use the loan to pay off the other accounts. Then, you are left with one simple payment, rather than multiple, and can potentially save on the interest costs. Oftentimes, personal loans offer lower interest rates than credit cards. Look for lenders like Lightstream with very competitive APR ranges.
Taking out a personal loan to fund a home improvement project is a great idea because it is an investment that will likely increase the value of your home. As a result, you can earn more equity which helps to offset the cost of the loan.
Dreaming of white sand beaches and days spent sipping mojitos in a hammock? It may not be as far off as you think. While not an investment into your future, sometimes we all need a break from reality. A personal loan may be able to give you the chance to see a part of the world you wouldn’t otherwise be able to see at this time. Lenders like Prosper and Upstart offer loans that can cover a vacation for people with fair-to-good credit or better.
A personal loan can be a financial tool to fund an exciting step forward in life whether that be a home improvement project, wedding, debt reduction plan, or something else.
The good news is, over the past decade, personal loans have become much more accessible. Not only have new financial companies cropped up but existing banks and credit unions have moved their offerings online. You can easily shop around from home and can find great deals thanks to all the competition in the market.
There seems to be a lender for almost everyone: those with fair credit and those with excellent credit, those who need $100,000 and those that need $2,000. If your credit is in really bad shape, you may need to pursue other funding options. However, you can always work on building your credit so you can get approved in the future.