Taking out a personal loan can be a smart move if you’re looking to get out from under high-interest debt or cover an unexpected expense. You don’t need a pristine credit record or fit the bank’s rigid standards to gain yourself some financial freedom.
Online lenders and loan marketplaces offer a range of loans to normal people looking for a more secure financial future, and less than ideal credit doesn’t need to be a deal breaker.
Finding the right personal loan company with terms that work for you can make all the difference. These are the 4 key things to consider when applying for a personal loan.
1. What is the Purpose of the Loan?
A personal loan can consolidate your debt under a single low interest loan. If you have thousands of dollars in student loans or credit card debt, and you’re paying around 15% interest, you can save a lot of money by consolidating the debt with a personal loan at 5-10% interest. Some sites, like LendingTree, can facilitate loans with an APR as low as 4.79%.
Personal loans can also be the most financially responsible way to deal with a sudden, unexpected expense. Because personal loans tend to be unsecured—no collateral is put up—the lender usually charges higher interest than a bank, but still lower than most credit cards. Applying for a personal loan is easy, and funds can usually be obtained in a matter of days.
2. How Much Do You Need?
Only you can determine what your expenses are, but it's wise to take out personal loans only for things that are not too expensive and which can be paid back quickly. Most online lenders offer personal loans only up to a limit which is less than what traditional banks top out at. However, online lenders such as AmOne will still give you a loan up to $40,000.
3. How Much Can You Afford to Pay Back?
Before applying for any loan it's always wise to take a step back and look at your monthly income and expenses. Ask yourself how much you can afford to pay every month toward the loan and if you’re consolidating debt, make sure that amount is less than what you’re currently paying on your existing debts.
4. What’s Your Credit Score?
A poor credit rating can potentially be a hindrance to securing a loan. Lenders are hesitant to give unsecured loans to people with bad credit, though with companies like LoansUnder36, bad or less than ideal credit isn’t a deal breaker, and flexible payment terms are possible as well.
With traditional financial institutions and brick and mortar bank branches, securing a loan with bad or poor credit can be a non-starter. Online loan companies tend to be more forgiving of your credit rating.
Need more information about the leading loan companies? Check out our comparison of the best personal loan providers to find the one that fits what you're looking for.