There are plenty of different financial products available that people can use to get some support. One popular option that people consider is a personal loan. Personal loans are financing opportunities that people can use that allows them to borrow money from a lender for a variety of expenses. It’s important to keep in mind that personal loans vary depending on the lender, type, etc. That is why it is important to find a good personal loan that’s right for your situation. However, you will need to put in a bit of work in order to find the right one. There are some tips you can follow that can help you with this process!
Tips to Get a Good Personal Loan
When it comes to finding the best personal loan for your situation, there are a few tips that you’ll want to keep in mind. This includes:
- Know Your Credit Score
- Learn About Different Lenders and Loans
- See if There are Limits
- Try a Personal Loan Calculator
- Beware of Bad Lenders
- Be Careful of Hard Inquiries
Know Your Credit Score
Your credit score is what lenders use in order to better understand how you are as a borrower and the risk they face. This is known as your creditworthiness. Before looking for loans, you want to understand where your credit is. You can check your credit score for free with no impact to your score. There are plenty of different ways you can check your score. However, one of the most popular ways that people check is through platforms like Credit Karma or your credit card issuer. Either way, you can review your score quickly and easily.
If you see that you have a credit score that could use some work then you will want to focus on improving it. There are plenty of ways that you can improve your credit score. Some ways that you could see an improvement includes:
- Keep your credit utilization below 30%
- Make your payments in full and on time when they are due
- Dispute any inaccurate negative items on your credit report
- Keep your accounts as old as possible
Learn About Different Lenders and Loans
Comparison shopping is an important part of what consumers do when deciding what product to get. That is why you will want to review different loans and different lenders. There are tools that you can use online like Experian’s CreditMatch that may be able to help. This tool uses your personal information to match you with different lenders that may be a good fit. You can even sort results by APR, repayment terms, monthly payments, etc. Every tool is different but many work similarly so you will want to see what platforms may be able to help you compare. You may also benefit from specifically considering a bank or credit union for your personal loan. While many people look to online lenders, it doesn’t hurt to also consider the classics.
See if There are Limits
Some loan products may have limits around what they can be used on. For example, if you get a debt consolidation loan then it can only be used towards debt consolidation. You cannot use the funds towards buying clothes for yourself. That is why before applying for a loan, you want to make sure you can use the funds for what you want. This will help you avoid getting a loan that you can’t use.
Try a Personal Loan Calculator
Another tool that may be able to help is a personal loan calculator. This is a tool that helps you run the numbers of loans. This can help you compare rates, loan sizes, terms, fees, and more. There are plenty of free calculators online that you can check out like this one that BankRate offers. All you need to do is fill out some information like your loan amount, loan purpose, etc.
Beware of Bad Lenders
When reviewing your lending options, you want to take extra care to avoid bad lenders. There are lenders that take advantage of people in need. For example, payday lenders (that offer payday loans) will likely not be a good option to consider. That’s because payday loans tend to have high interest rates and hard terms to work around. In fact, payday loans typically charge between $10 to $15 for every $100 that a person borrows. Avoiding these lenders and loan types is important!
Be Careful of Hard Inquiries
Oftentimes, lenders will be able to prequalify a borrower when they are interested in a loan. When a lender tries to prequalify, that means that they run a soft inquiry which doesn’t impact the borrower’s credit. On the other hand, when they do a hard inquiry, the lender gets an in-depth look at the borrower’s credit file. This results in a negative impact on someone’s score by up to 5 points. So you want to make sure that you don’t submit too many hard inquiries at once.
Alternatives to Personal Loans
Besides personal loans, there may be other financial options to consider that may be able to help your situation. That is why besides thinking about personal loans, you want to review alternatives as well. Some alternatives to consider includes:
- Credit Card
- Peer-to-Peer Loan
Credit Card
One option to consider is a credit card. This is a revolving line of credit (unlike a personal loan which is an installment loan). That means that you can use the credit you want within your credit limit. In some cases, there may be credit cards that have intro specials like 0% interest for 12 months. When reviewing your options you want to keep in mind that there are two types of credit cards.
There are secured and unsecured credit cards. If you are someone that has bad credit, limited credit history, or no credit history then you will likely want to check out a secured credit card. That’s because secured credit cards require a security deposit that acts as your credit limit unlike unsecured cards that do not require that security deposit. There are some pros and cons that you want to keep in mind with this financing option.
Pros of a credit card can vary depending on the card issuer and the type of card you get. However, some popular benefits that can come along with a credit card includes:
- You may be able to benefit from intro offers like 0% interest
- You won’t have to deal with interest at all if you pay off your balance completely
- There may be rewards that your card offers like cash back
- There may be protections your card offers like warranties on big ticket purchases
However, just as there are some pros, there are some cons to be aware of as well. This includes:
- You’ll likely deal with higher interest rates compared to a personal loan
- You need to be disciplined with your credit card because you can rack up debt easily
- If you have a late payment then you may not be able to benefit from the intro offer
Peer-to-Peer Loan
A peer-to-peer (P2P) loan is very similar to a personal loan. However, the difference lies in how it’s funded. With a P2P loan, they are funded by individual investors instead of a lending company. There are plenty of platforms to consider but popular options include LendingClub and Peerform. These lending marketplaces will determine the first loan approval before allowing borrower applications into the marketplace platform. Once they are approved and they are placed in the marketplace, investors will review the borrower’s application before deciding if they will lend funds for their loan.
Since your application is reviewed by a person rather than a company, you may be able to have more flexibility when it comes to credit score requirements. For example, if you have some issues with your credit history, they may be able to overlook them with other signs of creditworthiness that traditional lenders may not consider. There are pros and cons for this option that you will want to keep in mind.
Pros of a P2P loan includes:
- Applicants may be able to receive money as quickly as one day after having their loan application approved
- You may be able to qualify for this loan option even with credit issues
- Depending on the loan, you may be able to delay a payment without extra fees
But remember, just as there are pros, there are cons you want to beware of. Some of the cons that come along with this loan option includes:
- You may have trouble finding funding
- There may be fees you need to deal with like an origination fee which can be costly
- These loan applications may take longer than the traditional loan process
Overall
When you need some financing support, you may benefit from getting a personal loan. However, you want to make sure you get the best personal loan for your situation. That is why you can benefit from keeping tips in mind like:
- Know Your Credit Score
- Learn About Different Lenders and Loans
- See if There are Limits
- Try a Personal Loan Calculator
- Beware of Bad Lenders
- Be Careful of Hard Inquiries
These tips can help you find the best personal loan for your situation. However, besides personal loans, you may be able to get financing support through a credit card or even a P2P loan. If you have any questions, you will want to get in touch with a professional like your local personal banker that can answer questions you may have.
