Personal loans let you borrow a sum of money from a lender and then pay it back in monthly installments over a set term – usually anywhere from 12 to 84 months. Those monthly payments include equal portions of the original loan amount, plus interest and fees. Personal loans can be used for debt consolidation, home improvements, vacations, big purchases and more. Understanding how things will go, from the time you apply to when you submit your final payment, is the key to making personal loans work for you.
How Personal Loans Work
Lenders Review Applications.
You will need to provide personal information (such as your address and SSN), financial information (such as your income and employment status) and more. The lender will evaluate and hopefully approve you.
Applicants Receive Funds After Approval.
The issuer of the loan will deposit the money into your bank account as a lump sum. You can do whatever you wish with the money, unless the terms of the loan say otherwise.
Interest Charges Accrue.
From the day you take out the loan, the amount will begin accruing interest at a rate set by the issuer. So no matter how long it takes you to pay the loan back, you’ll always owe more than you originally took out.
Borrowers Make Monthly Payments.
The lender will give you a required amount to pay each month. You can pay more if you’d like, but make sure that there’s no penalty for paying the loan off earlier than the terms of the contract stipulate. Some lenders may charge a fee.
Loan Payments Build Credit.
The lender will report to the credit bureaus whether you’ve paid on time each month. Once you’ve paid off the entire balance, including interest and fees, the lender will report your loan as paid in full. Abiding by the terms of your loan can help increase your credit score.
Personal loans are pretty simple. You just have to make sure to submit your payments every month, and setting up automatic monthly payments from a bank account can go a long way in that regard. The most complicated part of the process is probably selecting the correct loan, but WalletHub’s comparison tool makes that easy.
A good interest rate on a personal loan is 2.49% to 9%. The average APR for a two-year personal loan from a bank is 9.46%, according to the Federal Reserve, and the best personal loans have APRs as low as 2.49% for the most creditworthy borrowers. The rates you get will depend heavily on your credit, income, debt and other financial factors.… read full answer
The best way to get a decent interest rate on a personal loan is to comparison shop and get pre-qualified. WalletHub’s free personal loan pre-qualification tool helps you see which lenders have a high chance of approving you, as well as what interest rates you are likely to get if approved. You can then compare your pre-qualified offers to see what a good interest rate on a personal loan is for you personally.
Good Interest Rate on a Personal Loan by Credit Level
For excellent credit: You may be able to get interest rates as low as 4% - 7%. That’s where the majority of lenders set their minimums.
For good/fair credit: You’re unlikely to get the lowest interest rates available, nor should you have to pay lenders’ maximums. Look at lenders’ credit score requirements; the higher your score is above their minimum, the better your chances of getting a lower rate.
For bad credit: You probably won’t find rates lower than 25% to 36% from a bank or online lender. But personal loans from federal credit unions are capped at 18%.
If you’re planning on consolidating debt, a good interest rate on a personal loan is one that’s significantly lower than the rates on your existing debt. But as you compare personal loan interest rates, don’t neglect other terms.
A low interest rate might not be as great as it seems if you also have to pay costly fees to go along with it. For example, many lenders charge “origination fees” of 1% to 6% of the loan amount as an extra cost for opening the loan.
Getting a personal loan is a lot easier than many people think. Most people are familiar with the credit card application process, however, and getting a personal loan is very similar. In general, you comparison shop to find an offer that suits your needs in terms of loan amount, length and APR. Then, you check for pre-approval to gauge your odds of success. Once you’re confident you want to apply, you fill out an application with some key personal and financial information, submit it and wait for a decision. Applying for a personal loan can be done in a matter of minutes, and you may find out whether you’re approved within a few days.… read full answer
How to Get a Personal Loan:
Compare offers after checking your credit score.
Check for pre-qualification.
Fill out an online application.
Get a decision.
Receive a bank transfer for the loan amount.
The first step in the personal loan process is always to check your credit score. Personal loan companies, just like credit card issuers, will look at your credit when you apply to see if you qualify. The higher your credit score is, the more loans you’ll qualify for and the better terms you’ll get. You can check your credit score for free with WalletHub. It’s also a good idea to take a look at your credit report and dispute any errors before applying.
Once you know your credit score, you’re ready to compare personal loan offers. Take note of the credit requirements that each available loan has, and narrow them down to ones you can likely qualify for. Then, compare other terms, like interest rates, estimated monthly payments, loan amounts and timeframes. These can vary widely depending on the lender.
After you’ve narrowed down your selections to a few personal loans with the best terms you can find, you’ll want to see whether any of the lenders offer pre-qualification. Pre-qualification is a way to check how likely you are to get approved for a loan without actually applying. You’ll just have to give the lender some basic personal information like your Social Security number. Pre-qualification will not affect your credit. If you are pre-qualified, you won’t necessarily be approved. But your chances are about as high as they can get.
By this point, you should make a decision on which loan to apply for. When you apply, it’s best to do so online. That way, you’ll have the potential for the fastest decision possible. The application will ask for basic personal information like your name and address, plus financial information like your income, employment status and monthly housing payment. Be sure to fill out everything accurately and truthfully.
All that’s left now is to wait for a decision. It could happen instantly or could take a few weeks, based on how well you meet the loan’s credit and income requirements and how quickly the lender can verify your personal information. If you’re approved, the lender will send you a bank transfer for the amount of the loan. Make sure you manage the loan responsibly after that. Pay on time every month, and pay more than the monthly minimum if you’re able to.
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