Topics:Personal Loans 101 Financial Advice Personal Loan Industry News Home Improvement Financing Credit Advice Debt Consolidation Personal Finance Basics Personal Finance Retirement Interest and APR Emergency Loans Bad Credit
January 28th, 2021
A personal loan is money borrowed from a bank, credit union, or online lender that is paid back over a specified period of time. These loans can be used for a variety of purposes, such as debt consolidation, home renovations, medical expenses, and other large expenses. While this sounds like a great deal for borrowers, lending money is a large risk for lenders, especially if borrowers are unable to make their repayments. To assess risk, lenders need some way to determine whether or not a borrower is “trustworthy,” and for this reason they will look at your credit score and credit history to see how you’ve managed debt in the past. This is fine if you have a robust credit score, but what if you have bad credit? Or not credit at all? Will you never be able to take out a personal loan? How to know if you have bad credit For the most part, a credit score between 300 to 580 is considered bad. Even if you have fair credit, ranging up to 680, this may not be enough to qualify for a personal loan, and you would likely get hit with high interest rates if you were able to qualify. Good to excellent credit is anything beyond 700, so that is the number to shoot for, if possible. While it becomes more difficult to qualify for a personal loan with a bad credit score, that does not mean that there aren't any loan options available. Some lenders focus on lending to low-credit borrowers. Here are the top three: Best personal loans for bad credit Upgrade Minimum credit score — 600 APR range — 6.94%–35.97% Loan amounts — $1,000–$50,000 Upgrade is a marketplace lender, connecting borrowers with multiple lenders in its network. Generally, marketplace lenders are a better option for low-credit borrowers because they often don’t have a minimum credit score requirement. Since they are not funding a loan directly, there is more flexibility with rates and terms. If you are looking to build credit, Upgrade offers a free credit monitoring service for all consumers. This service allows you to access your VantageScore, latest credit reports, and personalized credit health insights. The majority of Upgrade customer reviews are positive with 68 percent of reviews highlighting a fast and easy loan process, and 26 percent of reviews highlighting good experiences with customer service, including professionalism and fast response and resolution on issues. Read Full ReviewVisit Site Upgrade Customer Review: Ardelle Faralli from Sicklerville, New Jersey "Customer service was great and very helpful. Didn't take long to get approved and receive the money in my account. My credit cards I chose were paid off quickly. I've paid off other expenses and feel good that I only have one monthly bill to pay instead of multiple bills. Thank you Upgrade so much!" Upgrade review data is taken from a sample of 100 reviews. Upstart Minimum credit score — 620 APR range — 8.27%–35.99% Loan amounts — $1,000–$50,000 Upstart is a peer-to-peer (P2P) lender focusing primarily on offering loan solutions to recent college graduates and young professionals — individuals who may not have an established credit history. Upstart claims to look at more than your credit score for qualification, including your education and employment history. This can increase your chances of approval if you have a low credit score. Upstart reviews are a mix between positive and negative. Twenty-three percent of reviews highlight an easy loan process, but the majority of reviews highlight unfavorable experiences with getting approved, as well as bad experiences with customer service: 20% of reviews outline bad experiences with customer service. 17% of reviews mention that they received very high rates. 37% of reviews outline difficulty in getting approved. Read Full ReviewVisit Site Upstart Customer Review: Albert Chiang from Santa Clara, California "Fast and simple approval process. Very responsive customer service for parts that I had questions about. Very competitive rates, I'd highly recommend!" If you are trying to get a personal loan with bad credit, remember that in most, if not all cases, you will get higher rates because you pose more of a risk to a lender since your credit score either reflects poorly against you, or your credit history is so limited that they don’t know if you are a responsible borrower. With so many reviews outlining difficulty in getting approved, this may not be the best choice for a lender, even though the company claims to serve low-credit borrowers. Upstart review data is taken from a sample of 30 reviews. OneMain Financial Minimum credit score — varies APR range — 18.00%–35.99% Loan amounts — $1,000–$20,000 On the surface, especially when looking at OneMain Financial’s rates and terms, it may not seem like the company would be the best choice since its APR range is much higher than other lenders, and it offers a much smaller maximum loan amount than other lenders. However, if you have bad credit, these rates and terms are actually more in your favor and can indicate a better chance of getting approved. With higher interest rates and smaller loan amounts, OneMain Financial mitigates its risk taken on borrowers, allowing the company to provide loans to a wider range of borrowers. OneMain Financial reviews are a mix of positive and negative sentiments. Forty-one percent of reviews highlight good experiences with customer service, while 20 percent highlight bad experiences. For the most part, customers are pleased with the professionalism and response speed of OneMain Financial representatives, but at the same time, some customers describe experiences in which responses were delayed. Read Full ReviewVisit Site OneMain Financial Customer Review: Richard Hutchinson from Glenwood, Iowa "One Main has worked with me to provide me with the appropriate loans to fit my personal needs. Customer service was outstanding and professional." Perhaps more relevant to bad credit borrowers, 11 percent of customers mention that being approved for a OneMain Financial loan was easier than with other lenders, but 6 percent of customers outline that they had a difficult time getting approved. OneMain Financial reviews data is taken from a sample of 80 reviews. How to know if a lender is a good bad credit option Perhaps you’ve already been doing your own personal loan lender research, but what are the things to look out for to know if they would lend to someone with bad credit? Based on what we’ve seen across lenders, here are some suggestions: Minimum credit score The first thing to look at when comparing personal loan lenders, especially if you have bad credit, is the company’s personal loan requirement. The average industry requirement is 660, although there are lenders that will accept scores as low as 620 or 600, and even lower depending on the lender. Generally, if your credit score does not meet a lender’s minimum requirement, it wouldn't be in your best interest to apply, as you would most likely be rejected. APR range Another factor you can consider when comparing bad credit lenders is advertised APR ranges. Generally, bad credit lenders will have higher interest rates to accommodate the risk they are taking in lending to a subprime (low-credit) borrower. For example, referring to the three lenders featured in this article, rates can range from approximately 7.00 percent APR to 35.99 percent APR. While many lenders offer a similar APR range, if you have bad credit, you can expect to get a much higher interest rate. Loan amounts Typically, lenders that lend to bad credit borrowers offer a lower maximum loan amount than you might see with other lenders. Thus, if you see lenders that offer loan amounts up to $100,000, for example, it is a good rule of thumb to assume that that lender isn’t for you, since lenders are more cautious in how much money they lend to borrowers with low credit. Loan terms Similar to loan amounts, if you see lenders offering wide loan term ranges, it is likely that they aren’t meant for you. In most cases, lenders want to ensure that they will get their money back and will seek to accomplish that in the shortest amount of time possible, especially if you have a low credit score, because that could be an indicator that you were not responsible in making payments on past debt. Secured loan option One easy way to know if lenders will provide you with a loan is by seeing if they offer secured loans. A secured loan varies from your typical unsecured installment loan which depends on credit for approval. Instead, a secured loan requires some type of collateral, such as a home or car, which provides the lender with protection if you were unable to make your payments. How to improve your credit score If you want to improve your chances of qualifying for a personal loan, or getting a lower interest rate, there are some ways that you can improve your credit score. Make on-time payments Your payment history on past or current debt is the largest factor that makes up your credit score. Make on-time credit card, mortgage, auto loan, and installment loan payments to keep your score on the high side or even raise it up. Late or missed payments may incur a late fee, but can also take a big hit at your credit score. If you are unable to make on-time payments for any reason, contact your lender and find a solution, potentially saving you from any credit score stress later on. Manage credit card balances and keep credit utilization low One other factor that is largely taken into account when forming your credit score is your credit utilization rate or ratio. In the simplest of terms, your credit utilization ratio is a numerical representation of how much credit you are using in relation to how much credit is available to you. Generally, it is wise to keep your credit utilization low. If you find that you are using the majority of your credit, you can seek to increase your credit limit, which can help keep this ratio in check. Avoid closing credit cards While you might think that closing some of your credit cards is a good way to improve your credit score because you’re decreasing your debt, this actually isn’t the action that you want to take. Closing a credit card can impact your credit score, and while there are options to cancel cards safely, it is in your best interest to leave credit accounts open even if you aren’t using them. Sign up for a credit repair service While there are other solutions that could easily do the trick, if you’d like some extra and professional help in improving your credit score there are a variety of credit repair services that you can choose from. In most cases, credit repair companies charge a fee for removing negative marks from your credit reports. The credit repair company won’t just magically remove negative marks from these reports, but will work with you to identify inaccuracies in your reports that could be fixed. Best Personal Loan Companies Learn more about personal loan products and services by looking at the top-rated companies and their offerings. Learn More
Guest Post by Andrew Latham As consumers, we love to spend time comparing every detail about the things we buy. On average, We spend 124 hours comparing an average of 19 homes (RealTrends). We invest more than 14 hours researching a new vehicle (Cox Automotive). We spend on average up to 20 hours to plan a week’s vacation (VacationKids). It is smart to take your time and analyze your options when making a large purchase. However, the same can’t be said about the way we compare the financing options for those purchases. Granted. The reason we spend so much time geeking out over specs and features is that we enjoy planning and thinking about our next vehicle, home, or vacation. But failing to show similar enthusiasm in the rates and terms of the loans we use to finance our purchases is costing us. Not comparing lenders is an expensive mistake For most homebuyers, the mortgage shopping process stops after their first application. A study by the Consumer Finance Protection Bureau reported that 77 percent of homebuyers only applied to one lender. However, comparing multiple lenders on a typical $250,000 mortgage would save the average buyer up to $3,900. A recent survey by the Federal Reserve reported that 76.1 percent of car buyers negotiated the purchase price with the seller, but only 31.6 percent negotiated the interest rate on their loan. Failing to compare several auto lenders causes the average car buyer to pay an interest rate that is 1.3 percentage points higher than the best rate available, according to a 2017 study. In other words, most borrowers pay more than they need to just because they don’t know they have better offers available. We also find this trend in the unsecured personal loans sector. People tend to go with the first lender that approves their loan. This is a big deal. The price dispersion of personal loans In 2019, Americans held a balance of $148 billion in personal loans. Even a modest variation in interest rates could have a significant impact on the debt of American consumers. To illustrate, let's assume that $148 billion balance has an average term of 36 months and a 13.5 percent APR. Dropping the average APR by only 3.5 percentage points to 10 percent would save Americans $3 billion a year. A recent study by SuperMoney, a financial services site, analyzed nearly 160,000 loan offers to over 15,000 borrowers who recently applied for a loan. It found that the average difference between the highest and lowest APR offer (for the same borrower and loan term) was 7.1 percentage points. The potential savings on even modest loan amounts are huge when the range of rates is so broad. Consider one borrower in the study’s dataset that had a credit score of 720 and applied for a $30,000 loan with a 36-month term. The lowest APR offered was 5.99 percent APR and the highest was 15.87 percent. This price dispersion on a $30,000 loan translates into savings of up to $5,050 — or 17 percent of the loan balance. It is worth emphasizing again that this price dispersion is for loan offers to the same consumer. Comparing multiple lenders when shopping for a personal loan is a smart idea no matter what your credit score is. However, the study showed that borrowers with fair (580–669) and good credit (670–739) had the most to gain from comparing multiple lenders. Both credit score brackets had a price dispersion of 8 percentage points. That does not mean that comparing lenders is not important when you have excellent credit. According to the same SuperMoney study, failing to compare multiple lenders could save borrowers with very good credit more money than increasing their credit score by 100 points. The problem Every year, Americans waste billions of dollars on inflated interest rates. Many borrowers only check one or maybe two lenders. There are several reasons for this. For starters, applying for multiple loan quotes is tedious and time-consuming. Borrowers often think it is a waste of time to compare prices because they assume all lenders have similar rates for people with their credit score. Some also worry that applying for multiple loans will hurt their credit score. They are not wrong. Every time you get a hard pull on your credit report, your credit score will probably drop by a few points. The solution The good news is that many lenders allow you to prequalify and check your rates with a soft credit pull, which will not ding your credit score. There are also fintech companies that are reducing search frictions and price dispersion by making it easier to compare mortgages, auto loans, and unsecured personal loans. Next time you get a mortgage, auto loan, or unsecured personal loan, do yourself a favor and invest just a few minutes of your time comparing prices. There is no upside to paying more than you have to for a loan. Just spending a few minutes comparing the loans you qualify for could save you thousands of dollars over the life of the loan. Andrew Latham is the managing editor for SuperMoney and a certified personal finance counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.
These awesome companies have earned a coveted spot on Best Company's top five best personal loans companies list for 2021. After factoring in each of the companies' overall services and over 10,300 customer reviews, you'll know why these personal loan companies are the best. Discover which of these personal loan companies may be the best option for you: 1. Best Egg What to expect Best Egg is known for having some of the speediest and easiest loan approvals in the industry — often times in as little as one business day. For customers that are in need of a quick loan approval, Best Egg is a great option. Director of Content & Mass Media for Best Egg, Sarah Zangrilli, lays out what makes Best Egg a standout personal loan company: “[Best Egg has an] amazing culture, top notch customer service, and quickly funded loans.” Read Full ReviewVisit Site Customer sentiment criteria Value for your money — 4.5/5 Quality of product or service — 4.5/5 Customer service — 4.5/5 Company trustworthiness — 4.5/5 2. FreedomPlus What to expect FreedomPlus has unique debt consolidation loan options and benefits. If you are wanting to pay down your credit card debt, FreedomPlus will exclude that debt from your debt-to-income ratio, helping you to qualify for more money and possibly better rates. Senior Director of Marketing for FreedomPlus, Archuna Jagota, highlights two of FreedomPlus's strengths: “Unmatched customer service — FreedomPlus offers a quick and easy online application process with a focus on personalized customer service via the phone. Our knowledgeable loan consultants make the application process informative, efficient, and easy for borrowers. Smarter loan solutions — We go beyond the credit score to understand a customer’s full financial situation. We reward consumers through lower rates for doing responsible things like paying off debt with a FreedomPlus loan, adding a co-applicant who has income, and saving for their retirement. FreedomPlus has helped thousands of customers find a personal loan solution to fit their budget and goals.” Read Full ReviewVisit Site Customer sentiment criteria Value for your money — 4.5/5 Quality of product or service — 4.5/5 Customer service — 4.5/5 Company trustworthiness — 4.5/5 3. SoFi What to expect If you are wanting to borrow a large sum of money, SoFi is most likely your best option. Most other lenders cap their personal loans at around $40,000; however, SoFi will lend approved borrowers up to $100,000. Affiliate Manager for SoFi, John Wong, explains more about why SoFi is different:“We pride ourselves to be one of the top prime lenders on the market. We provide our over 900,000 members with the tools they need to borrow, save, spend, invest, and protect their money—all from the SoFi mobile app. Read Full ReviewVisit Site Customer sentiment criteria Value for your money — 4.5/5 Quality of product or service — 4.5/5 Customer service — 4.5/5 Company trustworthiness — 4.5/5 4. Upgrade What to expect Most personal loan companies require a credit score around 650. Upgrade has one of the lowest credit score minimums in the industry with a minium requirement of 600. For those that have poor credit and are having trouble finding approval for a personal loan, Upgrade may be worth looking into. Marketing Manager for Upgrade, Kyle Wood, shares two additional characteristics that differentiates Upgrade from others: "Fast funding — Applicants can get approved and receive their funds in as little as one day. Co-applicants — We offer joint applications to our borrowers.” Read Full ReviewVisit Site Customer sentiment criteria Value for your money — 4.5/5 Quality of product or service — 4.5/5 Customer service — 4.5/5 Company trustworthiness — 4.5/5 5. Upstart What to expect Upstart has high approval odds, taking into consideration a number of different factors, such as education/area of study, job history, credit score, years of credit. For those with little to no credit history, but have a quality college degree or a high-paying job, you are likley to qualify for a personal loan from Upstart. Head of Communications for Upstart, Diana Adair, expands on Upstart's unique personal loan qualification criteria: “Upstart believes you are more than your credit score. Your education and job history help us understand more about your future potential. Upstart is the leading AI lending platform partnering with banks to expand access to affordable credit. More than two-thirds of Upstart loans are approved instantly and are fully automated. In addition, Upstart's patent-pending platform is the first to receive a no-action letter from the Consumer Financial Protection Bureau related to fair lending.” Read Full ReviewVisit Site Customer sentiment criteria Value for your money — 2.5/5 Quality of product or service — 2.5/5 Customer service — 2.5/5 Company trustworthiness — 2.5/5
34.3 million. That's the number of U.S. consumers with a personal loan at the end of 2018, according to Experian. According to the same Experian study, there are 36.8 million outstanding personal loan accounts in the United States. "Personal loans are one of the easiest and most efficient ways to get cash in your pockets quickly and responsibly," says Mariel Arraiza, Managing Director, Eloan.com. Many people get this type of loan to help consolidate other higher-interest debts although personal finance experts differ when deciding if this strategy is the best way to start on the road to being debt-free. While personal loans are a safer, more responsible option than payday loans or playing the lotto to solve your debt problems, it seems like we need to work on being responsible with them after getting approved and getting the money. With a goal to make your current personal loan your last, we asked personal finance experts for strategies to help achieve that end. Here's what they said. 1. Budget, budget, budget When it comes to financial advice. Joe Toms, president of FreedomPlus has one word for us: "Budget." "Many people cringe at the word," says Toms, "but it is the number one way to avoid getting in [a cycle of debt, and to get out of debt for good." Budget before applying To utilize your loan wisely, Arraiza suggests, "First and foremost, you need to know what you can afford to pay on a month-by-month basis. If you don't already have a monthly budget, create one before you begin applying for loans. This will let you know how much cash you have leftover each month to comfortably repay a personal loan." Budget around your goals "It's important to start by setting goals – and if you're in a relationship and/or have a family, to do so with your spouse and family members," advises Toms. "One goal might be to get out of debt, but other goals might be things like having time to train for a 10K, saving for retirement or taking a vacation. Write down the goals and build the budget around the goals." 2. Consider multiple loan offers "When determining whether a personal loan makes sense for your financial situation," Lauren Anastasio, CFP and Financial Planner at SoFi, has some advice: "you should consider the upfront costs associated (if any) and whether the fixed monthly payment is something you can afford." Research your options "Once you know how much you can afford to pay on a personal loan each month, the next best piece of advice is to take your time," counsels Arraiza. "Unless you're in a rush to get a loan, there's no reason to rush a financial decision. Do plenty of research and planning, and compare multiple providers against one another." Shop around "Remember that you can shop around for the most convenient terms without affecting your credit score, says Arraiza. "Checking your rates is a soft pull and unless you formally submit an application the prequalification normally will not show on your credit profile…" Work on your credit score "If you have a low credit score," she adds, "you can also use this time to work on raising your score, so that you can get the best rates possible. While it may be tempting, don't jump on the first loan that you are approved for. Hold out for the one that will benefit you and your financial situation the most.” 3. Evaluate spending behaviors "The only way to make this personal loan the last one you have to get to climb out of debt is to make changes in how you spend your money," warns Deacon Hayes, founder of Well Kept Wallet. "Some of those changes may be hard to make, but it could be the only way to get real results and stay out of debt for good." Commit to change Changing behaviors is hard. However, in this case, it is a key component to avoiding debt. Just listen to this story from Anastasio: "I frequently speak to SoFi members who are struggling with debt and are looking to take out a second or third personal loan because they failed to change their behavior when they consolidated their debt onto their first personal loan. It's hard to resist the feeling that comes with watching your card balances go down to zero. Time and time again, I hear from borrowers about their feelings of euphoria when they use the loan to pay off their credit cards and then they start acting like they're completely debt-free." Becoming debt-free isn't just a one-step process. Even if you have consolidated your debts into one personal loan, it isn't gone. The debt still exists. AND, you still have to pay it. Here are a few ideas how to help adjust your perspective and shift your paradigm so that you can keep your debts in perspective and manage them accordingly Track all spending "Once you have a budget, with the personal loan payments included," Toms recommends that you "start tracking all spending every day. It can be surprising to see how much you spend, and on what. Writing it down – just as writing down everything you eat when you are watching your weight – opens your eyes to your real spending patterns, and helps you avoid getting back into debt." Act like you are still paying off credit card debt "Anyone using a personal loan to pay off debt should implement the same behaviors recommended when paying off high-interest credit cards (e.g. stop using cards, rely on cash and debit card, reduce spending until debt is gone)," advises Anastasio. Denise Nostrom, Owner of Diversified Financial Solutions agrees with this mindset. She says, "Taking a personal loan can be a positive experience to eliminate your debt, but you must have a plan to increase your odds of success. You should consider writing down all the payments you make to your current debt and try to pay this amount to the new personal loan. The actual payments to the personal loan may be less due to a lower interest rate, but paying extra to this loan will get you out of debt much quicker." Keep your debt in perspective and follow this strategy from Anastasio: "It's very important to remember that just because you might not have a number of different debts scattered across multiple banks with a bunch of different monthly payments doesn't mean that you're any less in debt than you were previously. You need to work towards paying your debt off with the same amount of discipline as if you were still being charged a 27 percent APR on a credit card." Use credit cards wisely "While a personal loan is easier to manage and the balance cannot go up," says Anastasio, "those who found themselves in credit card debt due to bad spending habits should be careful not to find themselves racking credit card debt back up." As Nostrom puts it, "The key to keeping out of debt is not using your credit cards." However, she points out that "This is unfortunately not so realistic, so you can use your credit cards, but make sure the purchases you make can be paid off each month. You can become debt-free if you are committed to doing it and have a plan to tackle it." 4. Dominate your payments "Personal loans come with a set payment schedule," states Toms. "Most have terms of 36 to 60 months (some, like FreedomPlus, offer 24-month terms, too). The strict schedule keeps people on track to eliminate the debt in a timely way; there is no option to just make minimum payments and be paying back the debt for years and years (as is the case with credit cards)." So, if your budget has been set up to your advantage, this pre-set, defined schedule should do some of the heavy lifting for you. Make all payments on-time "Once you select the best term and your loan provider, please remember to make your payments on time until the last one," urges Arraiza. "Your payment pattern is a great contributor to build your credit score." With an improved credit score, you will likely be eligible for better loan rates down the road, instead of massive credit card APRs that got you here in the first place. Plan payments realistically "Often a borrower becomes too aggressive with their repayment when transitioning their debt to a personal loan," shares Anastasio. Due to this, consumers "can find themselves without enough money to get them through the month and are inevitably forced to charge expenses to their credit card. This will keep the debt cycle going indefinitely. Be realistic about what you can afford for a monthly payment and stick to the term that fits your cash flow." Consider alternative payment strategies Jeff Rose, CFP®, and CEO of Good Financial Cents® shares the following "trick" to help avoid a cycle of debt: "Pay a partial payment on your loan once a week or once every two weeks, rather than once a month. This helps keep your debt in the forefront of your mind and, typically, you'll save a little more in interest to boot. This frequent reminder that you're working toward being debt-free will help squelch the impulse to buy more things on credit. As a bonus, you may find it easier to send extra money by choosing one thing to go without per payment (such as an extra $10 by skipping the drive-thru one extra day this week). Important note: Make sure that you confirm how to properly send and have partial payments credited so you've paid the whole amount (or above it) before the monthly due date. Ask your loan grantor for help if the information you're given is at all unclear on how to accomplish this." Don't jump the gun with autopay "Stop automatic payments only when the loan is entirely paid off," advises Jacob Dayan, CEO, and Co-founder of Finance Pal and Community Tax. "In many cases, people who are attempting to make their last payments on a loan, see the end in sight of being debt-free, and stop their automatic payment too soon. Meaning, they will neglect to pay the loan in full and begin to receive late notices from a creditor. This can ultimately send many borrowers right back into the cycle of debt when having to then pay off late fees. Allowing these late fees to pile up can also negatively impact credit." Keep payment records "Keeping a good record of making the final payment on the personal loan can be very rewarding," says Dayan. "Holding a record of paying off a personal loan should be celebrated and these records can be a reminder that you can start living a debt-free life. Also, many lenders will send an automatic notice, but some might not. It is crucial to ask the lender to send the notice when the loan is paid in full to provide proof in case someone attempts to collect payments in the future." Make this personal loan your last Debt-consolidation loans are not a one-size-fits-all solution for all outstanding debts. If you are currently, or plan to use a personal loan for this purpose, you need to have a game plan. It isn't going to just work itself out. This expert advice will help you keep the loan and your debt-free goals in perspective. Make this the last personal loan you ever need.
Personal loans are increasingly popular as a debt consolidation tool. When you have lots of credit card debt, one way to improve your credit and your financial well-being is by taking out a consolidation loan with a lower interest rate than you are currently being charged on your credit cards. This is just one of the five most common uses of a personal loan, but is a good example of a personal loan’s usefulness. However, when you apply for a personal loan, not everyone gets accepted. Even when they do, the rates and terms for their loan may be much different from the "as low as" rates that are advertised (and only available to people with the best possible credit). So, what are the reasons that you might get rejected, and what can you do about it? Usually, if you are applying online, you will get an immediate rejection, but you will be sent a letter explaining which of the eligibility criteria caused your rejection in the mail within the next few business days. Rejection always stings, and rejection related to the very vulnerable topic of your finances can feel incredibly personal and painful. You're probably desperate to know what went wrong. For this article, we asked personal finance experts to explain why an applicant might be rejected for a personal loan application and what their next steps should be. Reason #1: Insufficient monthly income "Lenders want to ensure that you are able to repay the money you are seeking to borrow," explains Nathalie Noisette, Founder of Credit Conversion, a credit concierge company providing tailored credit educational resources. She says, "Repayment potential is determined by inquiring into your annual income. If it is determined you don't make enough money, you may be rejected." Helen Chen, Director of My Cash Online notes, " A lender wants to know that you will be able to comfortably make loan repayments every month, both for their own security and to comply with lending regulations. You need to show that your income will cover your daily living expenses plus the additional cost of monthly loan repayments." What can you do about it? "In addition to making more or asking for less, you could start off with a small loan request at first, establish trust, then ask for more later when you've established good faith with the lender," suggests Noisette. Another idea comes from Chen: "If your income falls short, consider extending the loan term which will reduce monthly repayments, or applying for a lower amount." Reason #2: Spotty employment history In conjunction with your income, Chane Steiner, CEO of Crediful adds, "Employment history can also be grounds for rejection. If someone changes jobs often the stability of their income is questionable." What can you do about it? If this is the case, Steiner emphasizes the importance of thoroughly listing all of your employment details: "Be sure to include ALL of your income on the application. Maybe you work a weekend or night job part-time. Include that. The additional income could be the difference in securing approval." Reason #3: Thin credit file or bad credit "Probably the most common reason personal loan applications are rejected has to do with the applicant’s lack of personal credit history or poor credit history," asserts Todd Christensen, Education Manager, Money Fit by DRS, a non-profit debt relief agency. "Many lenders use your credit score to determine how high of a default risk you are," explains Noisette. "The higher your score, the lower the risk. The lower your score, the higher the risk. If you are a high-risk borrower, lenders will likely decline your application." Along the same lines, "If you have missed repayments on other debts or utilities or have no prior credit history, it will be more difficult to get a loan," advises Chen. "Most lenders have options for borrowers with a low credit score, so speak to them about whether there are any other products that may be more suitable for you." If you don’t have a good credit score, can’t get approved for legitimate subprime credit options, as Chen suggested, or the cost to borrow is too high, you may be looking for more financial options. What can you do about it? Trying to get a personal loan with bad credit or no credit "can seem like a Catch-22," Christensen expounds. "How are you supposed to qualify for credit if you can’t get approved?" It’s time to "clean up your credit," according to Noisette. "Start to reestablish your credit-worthiness and ask for the loan when you have a better credit rating." But what is the game plan? As Christensen explains, "The standard methods of building credit (starting local and small, then moving step-by-step from tire store credit to retail and gas through bank or credit union card) typically take a year to build an acceptable credit history. Unfortunately, if someone is needing a personal loan, they probably need the money sooner than later, certainly within a year." If you have less than a year before you need to try to get approved for personal loan funding, Christensen suggests short-term credit-building strategies: check your credit, look into Experian Boost, see if you can become an authorized credit card user, or check out a credit builder loan, available from various financial institutions. "Pull your own credit report from AnnualCreditReport.com, check for errors that might be hurting your score (late payments, accounts reporting as collections, incorrect balances, etc.) and then dispute those errors directly through the credit bureaus homepages (Equifax.com, Experian.com, and TransUnion.com). Look at using Experian’s new, free Boost product to get you 'credit' for your monthly bill paying activities (ex. rent, utilities, cell phone). Experian is the only one of the three consumer reporting agencies (bureaus) to offer such a product, but it is boosting participants’ credit scores by an average of 15 points. Ask a family member with good credit to add you to their credit card account as an authorized user. Regardless of your own credit rating, being an authorized user has no impact on their rating. You don’t have to use or even see them to receive some of the benefits from your family member’s good credit. Some credit unions have $1,000 credit builder loans that can give you $500 upfront, place the remaining $500 in a secured savings account, and have you make monthly payments for a year (often requiring direct deposit from your employer) until the $1,000 is paid, plus interest. At that point, you also gain access to the remaining $500." Reason #4: High debt-to-income ratio (DTI ratio) Javier Martinez, from Zirtue, a relationship-based lending application that simplifies loans between friends and family explains, "consumers with excessive debt have a higher rate of denial due to their debt-to-income ratio, causing banks to feel concerned about extending additional credit to them." What can you do about it? "If you make a lot but owe a lot, a high debt to income ratio may scare a lender off," declares Noisette. In this case, the solution is to "Lower your current debt before reapplying for new debt." Another type of borrower with a high debt-to-income ratio could be in a different situation: too many existing debts. "A large number of small loans or credit cards spread across different providers can be a warning sign to new lenders," explains Chen. If that sounds more like you, "Consider consolidating your debts into just one or two personal loans and you will be much more likely to receive loan approval," the next time you apply. Reason #5: Too many declined loans in the last year "It's considered a ‘hard inquiry’ when you apply for a car loan, credit card, mortgage, or student loan," says Chris Michaels, Founder of Frugal Reality. " Whether you apply and get accepted or not, it is still considered a hard inquiry. Too many applications/inquiries make lenders very nervous you are trying to expand your credit too quickly. If your available credit expands too quickly, then they start to worry whether you can afford to pay each lender back if you maximize all available credit at once. All inquiries will remain on your credit report for 24 months, but hard inquiries only affect your score for the first 12 months of each inquiry." What can you do about it? "Before applying," stresses Michaels, "it's advised to ask each lender the likely outcome given your current income, total and monthly debt, and credit score. This will limit the negative impact to your credit score, help you shop better lending institutions, and provide better outcomes." This type of inquiry is generally considered a pre-qualification and will include a soft inquiry into your credit rather than a hard inquiry. This is better for your credit in the long run. Bonus credit recovery steps As a bonus for our readers, personal finance expert Carey Zielke from Realities & Dreams, a website dedicated to helping people chase financial freedom and their dreams, has some advice to share. "If your loan application was denied, the lender is required to send you a notice of adverse action which will detail the reason(s) for rejection," explains Zielke. Once you get that notice, whether by snail mail or email, you will know which factors are holding you back. If you are denied, Zielke suggests that your initial plan of action should be to "Fix errors on your credit report if there are any." Next, the intermediate action steps include using collateral, saving up for a down payment, and using a co-signer, although Zielke warns, "I do NOT recommend this, but if necessary use a family member if possible, rather than a friend as this can lead to issues!" Finally, Zielke's long term steps to help determine that you will be approved the next time you fill out a loan application, are difficult sounding, but pretty fundamental: build your credit, enhance the amount of income you bring in, and "pay down or pay off some of your outstanding debt." The bottom line Getting rejected for a loan stinks. There’s no way around it. However, there are steps that you can take to avoid this rejection in the future. Simply increasing your knowledge of credit scoring, loan eligibility, and where you stand credit-wise can go a long way to helping improve your eligibility. If you can follow the expert advice in this article, work on establishing or rebuilding your credit, you will increase your chances of approval and a happy ending the next time you fill out a loan application.
Guest Post by Rohit Mittal, Co-founder and CEO of Stilt.comThe world runs on credit. From getting a car to financing a new business, a lot of life activities require you to borrow money. Many nonresidents are creditworthy but still struggle to get approved for loans. If this is you, read on — we’ll outline what the problem is as well as what to do about it. Why many lenders won’t work with immigrants Before giving you money, all lenders decide how risky they think you are. To make this determination, they will look at your credit history. Have you paid back your past loans in full and on time? Or have there been problems? A common issue for many immigrants is that they don’t have a U.S. credit history. Without a credit history, no matter how good your income is or how solid your finances are, most lenders will consider you high risk. The tools lenders use to evaluate potential borrowers just don’t work for your situation. Additionally, many visa holders won’t be in the country for that long. This makes traditional lenders even more adverse to lending to immigrants. Thankfully, more and more emerging lenders are specializing in immigrant loans. These lenders consider more than your credit history to determine loan approval. They will look at your employment prospects, educational background, income, and other factors to make a determination. But even if you work with a less specialized lender, there are still ways to prove your creditworthiness. Types of personal loans for immigrants Here are the three most common types of loans you can qualify for as a non-U.S. citizen: Short-term loan Short-term loans are small loans which require you to repay quickly. Generally, the loans are capped at around $1,000, though some lenders may go higher. Repayment terms will be between a few months and a year. An auto title loan is a short-term loan which uses the title of your car as collateral. These loans often have lower interest rates and let you borrow up to half the value of your vehicle. The downside, of course, is that you run the risk of losing your car if you struggle to make the payments. Installment loan Technically, any loan you get in a lump sum and pay back every month is an installment loan. But in the marketplace, an “installment loan” typically refers to a small loan that has a larger amount and a longer repayment period than a short-term loan. Installment loans generally go as high as $5,000 and can be an excellent tool to build or improve your credit history. Unsecured loan An unsecured loan is any loan which isn’t secured by a piece of property like a home, business, or car. With secured loans, a lender can recoup some of their costs by repossessing the collateral you put up for the loan. If a lender offers you an unsecured loan, it means they trust you can repay the loan easily. Unsecured loans can be offered for as much as $100,000 and can be used for almost anything. How to qualify for a personal loan as an immigrant It’s harder for a nonresident to get a personal loan than a citizen, but don’t let that stop you from pursuing one. You just need to compile a little more documentation and shop around for a lender who will work with you. Here is what you will need to qualify for a loan as an immigrant: Credit score and credit history Many lenders require a six-year credit history, which is impossible for many visa holders. Some lenders, however, will give you a personal loan if you have just two years of credit history and good credit. Unfortunately, even this requirement can be tough to meet for an immigrant. If don’t meet the above requirements, you can help your case by compiling additional documentation that shows you are a good candidate. Nontraditional credit references Any history of payments you have made steadily and on time can potentially be used as a credit reference. Do you rent an apartment, pay utilities, have a cell phone contract, or make payments on a life insurance policy? Gathering proof of consistent, on-time payments for any of these will go a long way in qualifying you for a loan. You can also try getting a credit reference from credit reporting agencies in your home country or from an independent foreign credit reporting agency. If a particular company abroad has served as your creditor, you can also try to get written verification of your credit history from them. Try to get three non-traditional credit references with at least a year of activity each. Your credit history will also need to be free of black marks such as debt collections, bankruptcies, or foreclosures. Documentation Lenders will want to know that you aren’t going to emigrate away from the United States with their money. Expect to document both your visa status in the country as well as proof that you are planning to stay for the term of the loan. If you are working, your employer will need to be e-verified. E-verify is a free federal system for companies. It is used to determine if employees are eligible to work in the United States. Talk to you employer if they are not part of the system. When you apply for the loan, you will also need to bring your visa and employment authorization form I-765, I-766 or I-797A.A personal loan is useful for any number of things: consolidating debt, home repairs, or starting your own business. Many visa holders are excellent candidates for loans, but still have trouble borrowing because of their immigration status and lack of credit history. If you are in that situation, researching specialized lenders and compiling a set of nonstandard credit references can help a great deal. The resources above will help you get started.Rohit Mittal is the co-founder and CEO of Stilt.com. Stilt is a fintech company focused on improving access to credit for immigrants and the underserved. The core mission of Stilt is to improve financial inclusion and help people live financially healthy lives who are shut out by the current financial system.
"There are plenty of fish in the sea." While this might not be true of your dating life, it's certainly true of personal loans. Personal lenders, which nowadays are often offered via peer-to-peer lending sites, occupy a space somewhere between credit cards and traditional mortgage loans, between banks and payday loans. And, yes, there are lots of them. To get an idea of just how many personal lenders there are out there, one need only look to Lending Club, "the world's largest online marketplace connecting borrowers and investors." On this site, the lenders aren't banks but individual investors who take a look at your application and decide if it's a good fit for them. So the number of total investors (or lenders) on Lending Club can number in the thousands. And that's just part of the tens of thousands of personal lenders that are now available to consumers. And then there are all the things you can use personal loans for. Unlike home loans or auto loans, which are pretty straightforward, personal loans can be used for almost anything. On Lending Club, for example, most loans go to debt consolidation or credit card refinancing. People have also been known to take out personal loans to finance a wedding, buy their uncle's car, or just take that dream vacation that has always seemed out of reach. So just to review: thousands of lenders, multiple uses. What could possibly go wrong? Yes, there is a downside. As sites like Lending Club, LendingTree, and Prosper make it easier for dozens of lenders to offer you personal loans, it becomes easy-too easy-to say 'yes' without really considering your options. As with your love life, signing on the dotted line without doing your due diligence can literally ruin your life. So before you fall in love with a personal loan, you need to recognize the warning signs that a particular loan might not be a good match. If you see any of these five signs, you might want to think twice about the personal loan in front of you: 1. The loan is the first and only one you've looked at Nothing against marrying your high school sweetheart, but experience can give you a big advantage when searching for both a soulmate and a personal loan. Let's say you submit your information on a site like Prosper or Lending Club. Before you have even hit 'submit' the phone rings and a lender is assuring you he has a "not-to-be-passed-up" offer for you. You need a loan. He's ready to give you one. You're off to the races, right? Wrong. As mentioned above, the number of peer-to-peer and other personal lenders out there is enormous and their rates and fees vary greatly. For this reason, there's a very strong likelihood that, as good as this first loan offer is, you will find others with even better rates and conditions. "As with any financial product, when it comes to taking out a personal loan it pays to shop around and compare APRs," says Emma Lunn of The Independent. "Your bank may say it offers preferential rates to its current account customers but you might still find there are cheaper loans available elsewhere." Our advice: it's in your best interest (pun intended) to take your time and entertain multiple offers before settling on one. 2. Your credit score is below 640 If you had the impression that personal lenders are easy, let us dispel that right now. Personal lenders are business people looking to invest their money in someone in hopes of making a return on that investment. To put it bluntly, personal lenders are not payday lenders. They won't lend to just anybody. The upside of this is that their interest rates and terms will be more reasonable because they don't need to protect themselves from investments gone bad. The challenge is that their requirements for borrowing from them are more stringent. As with other types of loans, personal lenders will use your credit score, among other factors, to determine if they should loan you money and how much they should charge in interest. According to Harry Langenberg at LoanNow.com, any credit score below 640 will pretty much keep any investors and lenders away from you. Our advice: if your credit score is languishing in the sub-700 realm, you owe it to yourself to get that score up before applying for any loans. 3. You own a home Owning your own home, especially a home with some equity built up in it, could mean that you've overlooked a loan option, possibly with a better rate. Consider, for a moment, that peer-to-peer loans and other personal loans are what is referred to as unsecured debt. This means no one is paying any insurance or guaranteeing repayment, and there is no asset (like a car or a house) to act as collateral if you become unable to pay off the loan. Because this scenario freaks out investors and all lenders, they cover their backs by charging higher interest rates and sometimes requiring that you pay for insurance along with your loan payments. What many homeowners don't know, however, is that the property right under their feet might be their ticket to a better loan with a much lower interest rate than your typical personal loan. "A home equity loan or home equity line of credit can often be cheaper than an unsecured personal loan," explains Claire Tsosie at NerdWallet. "Keep in mind that using your home as collateral means that if you default, you could lose your home." Our advice: check with your bank or local credit union to see if you qualify for a home equity loan or home equity line of credit, which are bound to have lower interest rates than your typical personal loan and with no extra insurance payment. 4. The lender is not state-licensed, has pending lawsuits, and/or has a poor BBB rating You knew this was coming. Some fraudulent lenders have adopted what can only be described as the "one-night stand" of personal loans, promising approval for loans with "too-good-to-be-true" interest. All you have to do is fork out a small fee. As soon as the payment is sent over, the fictional lender goes silent. They don't answer calls. They don't reply to emails. In many cases, weeks later, they do respond but just to tell you that your "pre-approved" loan just didn't shake out. Oh, and that small fee? It's non-refundable. Naturally. Unfortunately, advance fee loan scams and other loan fraud are just a part of the explosion in the number of personal lenders. As personal lending options multiply, this also increases the odds of a few bad apples sneaking in. Our advice: First, run from any lender who requires an advanced fee to determine if you're approved for a loan. Second, make sure any lender you communicate with is licensed in your state, has no past or pending lawsuits, and has a strong rating with the Better Business Bureau (BBB). If they don't pass these checks, move on to the next one. 5. You've seen credit cards with better interest rates To be sure, personal loans (namely those generated by the peer-to-peer lending model) are intended to deliver lower interest rates. After all, the whole peer-to-peer lending process is specifically designed to get the lowest possible rate for borrowers, given their credit history and financial situation. But that doesn't mean they're not sometimes outdone by credit cards. Those zero-percent introductory offers on credit cards, in particular, are your friend. For example, let's say you need to pay for travel to attend your sister's wedding in Botswana. The best offer you can get on Lending Club has a decent interest rate of 15% (which starts to accrue on the day you take out the loan). Sounds pretty good, right? But now let's say you just got a credit card ad in the mail offering 0% APR for 12 months. If you can pay off the loan within the 12 months, the credit card is certainly the smarter option. If not, then do the math and determine which option (the personal loan or the credit card) will be the cheapest when everything is paid off. Our advice: Don't limit your options just to loans, and don't avoid credit cards just because of all the negative press about them. Be objective and strategic about how you use all forms of debt, and you just might end up getting a killer deal. When You Know, You Know Ultimately, finding the perfect personal loan is the end result of lots of research and patience. It's about recognizing all of your options ( which is more than just personal loans) and knowing the right questions to ask about each one. It's setting yourself up for the best possible outcome by making sure you've got your credit score in order. The good news, peer-to-peer lending, and other services are only leveling the playing field and giving you the best shot at really great loans. To see how the various personal lenders measure up, visit our Personal Loans Reviews page today!
A study conducted by WisePiggy.com in 2016 discovered that 15 percent of Americans have no cash savings. About one-third of participants reported having only enough cash savings to cover a mere three months of living expenses. These numbers explain the growing popularity of personal loans and why many companies are advertising this type of loan. Personal loans are unique in offering borrowers flexibility. Some companies set restrictions, such as prohibiting the use of the loan for educational expenses; however, most personal loans may be used at the discretion of the borrower. With this level of freedom, the possibilities are endless. Here are some of the most common uses for a personal loan: 1. Credit Card Debt One of the most common uses for a personal loan is credit card debt consolidation. Americans owe over $1 trillion in credit card debt, creating an average debt of $8,301 per household. Consumers who only pay the minimum balance on their credit cards risk dragging out their debt indefinitely. In addition, many credit cards have higher APRs than personal loans. A personal loan may be especially beneficial for people with multiple credit card bills. Consolidating all your debts into one monthly payment, with a specified term length, can give you more control over your debt. Moreover, opening a new line of credit and paying off current debt can help raise your credit score. 2. Home Repairs and Improvement Life is full of the unexpected. Homeowners cannot predict damage due to the elements. Flooded basements and other major damages demand immediate attention. In addition, consumers may need more space to accommodate a growing family. Upgrades, re-landscaping, and other renovations can add value to your home. Personal loans may be a quick and affordable way to cover these type of expenses, especially for consumers with good credit scores. 3. Educational Expenses There are many great options for student loans; however, every college student knows that educational expenses extend beyond tuition. Depending on the amount and limits of your student loan, you may need additional funds to cover textbooks, housing, and living expenses while at school. Personal loans may help students cover these additional expenses. 4. Starting a Business Many companies and financial institutions provide traditional business loans; however, new entrepreneurs without current revenue may not qualify for this type of loan. Some companies require $50,000 in annual revenue, an impossible task for a new start-up. A personal loan may be a helpful option to finally start your dream business. 5. Medical Expenses Medical bills for both insured and uninsured patients can quickly add up. The average cost for a trip to the emergency room is $1,233. The uninsured face the worry of drowning in medical bills. Even insured patients are not exempt from high bills, especially patients with high deductible plans. In addition, not all medical procedures are covered by insurance companies. A personal loan may allow you to have elective procedures or pay off already accrued bills. These top five uses for a personal loan are just some of the many ways you can use this type of loan. Other common uses include vacations, weddings, and a variety of other major purchases. Personal loans are not right for every consumer or every circumstance. However, if you want to consolidate credit card debt, pay for home repairs or improvements, cover educational expenses, start a business, or pay medical bills, check out our top-rated personal loan companies and get started today.
Personal loans are generally a bit different than other types of loans. You might need a personal loan to meet your everyday expenses, plan a vacation, or even pay for a wedding. When you are in the process of applying for a personal loan, it's important to know what to expect so you can increase your chances of approval. The following tips will help you learn how to qualify for a personal loan that meets your needs in the best way possible. 1. Decide on a Loan Type Make sure that you understand what kind of loan you are applying for. There are a number of different types of personal loans. For example, you have the option to apply for a secure or unsecured personal loan. Unsecured personal loans don't require collateral such as your home, car, or other personal property. Interest rates are typically higher for unsecured loans due to the additional risk to lenders. If you default on an unsecured loan, the lender cannot foreclose your home loan or repossess your vehicle. Secured personal loans, on the other hand, require collateral that secures your loan and can be seized in the event of default. Other personal loan options include fixed-rate and variable rate personal loans, installment loans, lines of credit, and short term loans. 2. Improve Your Credit Score Your credit score will make a significant difference in the interest rate you will be offered on your personal loan. For example, with a subpar credit score, you will likely be paying more than 20 percent in interest. With an excellent credit score, your interest rate could be lower than 5 percent. Credit scores are usually categorized as follows: 760+ Excellent Credit 700 Good Credit 640 Fair Credit Remember, your credit score can always be improved. If your credit score isn't what you'd like it to be, you can raise it by settling your bills on time and never missing a payment. Believe it or not, there is actually a way you can be approved for a loan without any credit history at all. 3. Find the Right Lender Take the time to consider your options and shop for the right personal loan for you and your needs. Available financing sources include banks, credit unions, and online lenders. Loan variety and interest rates vary by institution, so it's a good idea to do your own research first before consulting with company representatives. Furthermore, avoid applying for as many personal loans as possible. This might seem like a good idea at first, but it has the potential to hurt your credit score in the future. 4. Only Take Out What You Can Afford Assess your current financial situation to figure out how much you can afford to borrow with a personal loan. Don’t take on more than you can handle. Some lenders might try to push you into taking out more money than you need, which could leave you in a lot of debt. Make up your mind about the amount you need before meeting with a lender. 5. Read the Fine Print When you do meet with a lender, be sure to ask for a full disclosure of all the loan terms and read the fine print of the contract so you understand all terms, monthly payments, fees, late payments penalties, and repayments options attached to the loan. If you know exactly what you're signing up for, it will make the process much easier and less stressful. You might find it difficult to choose a financial institution that will meet all of the personal loans qualifications you are searching for. BestCompany.com makes this process easier by ranking and reviewing multiple personal loan institutions. Based on the input of industry experts, we’ve developed a ranking criteria that takes interest rates, contract length, time in business, and other important factors to consider when choosing the best personal loan company for you. Most importantly, we’ve aggregated reviews about the financial institutions from real consumers so you can read what they think about the companies you are researching. Click here to see our top ranked personal loan companies.
Did you know that in 2020 20.9 million Americans had personal loans? And it is likely that the number will only keep climbing, just as it did in the past decade. Personal loans can be a good place to turn if you are low on funds, want to consolidate high-interest debt, or make a large purchase. Many people take out loans for home remodeling, new cars, or for student debt. However, there are a few important things that you should know about personal loans before you sign on the dotted line, including the following: Or skip ahead and read about our top personal loan lenders 1. The difference between an unsecured and secured personal loan Before you take out a personal loan it is first important to understand the types of loans available to you, mainly the difference between unsecured and secured personal loans. An unsecured loan is the more common type of personal loan, and is not backed by collateral or protected by a guarantor. This can pose a risk to lenders, as there is no protection for them if you are unable to repay your loan. For this reason, interest rates may be higher for unsecured loans and lenders may heavily rely on creditworthiness to determine your eligibility for a loan. A secured loan is backed by collateral — assets such as a home or a car — which incentivizes borrowers to repay their debt because the lender could seize the collateral if payments aren’t made. In this case, since borrowers are taking a greater risk in putting up collateral, lenders are more likely to accept borrowers with weaker credit scores. The majority of personal loan companies only offer unsecured personal loans, although some lenders may offer both unsecured and secured loans. Therefore, it is important to ensure that your credit score is in good standing and that you’ll be able to afford a higher interest rate. 2. How interest rates work Interest rates on personal loans will either be fixed or variable, which will generally only affect your monthly payment amount. A fixed interest rate means that your rate will stay the same throughout the life of your loan, which means that your monthly payment will never change and you will always know what you owe month to month. A variable interest rate, on the other hand, will fluctuate throughout the life of your loan, because your rate will be based on the market which consistently rises and falls. This means that your monthly payment may vary throughout your loan term, but your initial interest rate may be lower to account for the fact that it will likely rise some as you’re paying off your loan. Many personal loan lenders offer both a fixed and variable interest rate option, allowing you to choose what will best fit your needs. 3. Your credit score When taking on any type of debt, your credit score is a crucial player in determining whether or not you qualify to borrow money, but also decides the rates and terms that you will receive. Although other factors, such as annual income and debt-to-income ratio, may be considered, having a stellar credit score is the key to securing a low interest rate. Minimum credit score requirements will vary by lender, but a FICO score from 670 to 739 or higher would provide you with greater flexibility in choosing a lender, but could also get you better interest rates. However, top lenders, such as Best Egg or SoFi, may accept borrowers with credit scores as low as 600. If you do not have an established credit history, or you just have bad credit, some lenders have an option to apply with a cosigner. Applying for a personal loan with a creditworthy cosigner adds an additional, and higher, credit score to your application which can increase your chances of approval and get you a lower interest rate. If this would be helpful for you, be sure to confirm whether or not your potential lender offers this option. 4. What you’ll be using the loan for Different from a student loan or home loan, a personal loan can be used for a variety of purposes. Thus, when you’re looking into getting a personal loan, it is important to nail down exactly what you are going to use the loan for. The majority of lenders allow borrowers to use a personal loan for whatever purpose they’d like, which can provide some flexibility, but knowing exactly what you need a loan for will help you determine the exact loan amount you will need. Unlike home, car, and student loans, personal loans can be used for a variety of purposes, including debt consolidation, home improvement, major purchases, vacations, car financing, wedding costs, medical bills, and business expenses. Some personal loan companies have stricter loan use stipulations than others, so borrowers who are unsure if they will be allowed to use funds for their desired purpose should talk to the potential lender before applying. One of the more popular uses for a personal loan is debt consolidation, which allows a borrower to combine multiple debts, usually credit card debt, into one in a new loan with better rates and terms. Michael Micheletti freedom debt relief; Industry Expert Consolidating debt with a personal loan: Debt consolidation through a personal loan is popular because it can be so effective. For someone with credit card accounts bearing high interest rates, a personal loan could allow them to take out one loan with a lower interest rate, use the proceeds to pay off all the high-interest accounts, and then have just one payment a month for the personal loan (with a lower interest rate). 5. Possible fees A number of fees may be associated with a personal loan. For example, you could incur application fees, origination fees, check processing fees, late fees, or prepayment fees. It's wise to confirm fees with your potential lender before applying so that you are aware of exactly what additional costs you may have. 6. How to increase your chances of approval If you are rejected for a personal loan or just want to boost your chances of approval upon applying, there are a few steps you can take: Clean up and manage your credit Check your credit report for errors that could be hurting your overall score, and get on top of payments if you haven’t already. Making consistent on-time payments is one surefire way to increase your credit score and bolster your credit history. Boost your income Some personal loan lenders will also take a look at your income when considering you for loan approval. This can be helpful if you have less-than-perfect credit but a steady income; but, if you have a low income, this could make it difficult to qualify for a personal loan. Thus, you could seek to boost your income by taking on a side hustle or another job. Take care of other debt When you are looking to take out a loan, which is essentially more debt, it can be helpful to pay down and manage other debts you may have. Paying down debt combined with increasing your income can increase your debt-to-income (DTI) ratio, which could improve your chances of approval. Apply with a cosigner Another option is to apply for a loan with a cosigner, adding another and stronger credit score to your application. A cosigner provides a lender with greater assurance that payments will be made since the cosigner would be responsible for paying off the debt if the borrower can’t. Applying with a cosigner could improve your chances of approval, but also help you get a lower interest rate. It is important to note that not all lenders accept cosigners. Make sure you check with your lender to see if this is an available option. Find the right lender Not all personal loan lenders are the same. Therefore, it is important to do some research and comparison so that you can find the best lender to fit your needs. Consider your credit score, what loan amount you would need, whether you’ll need to apply with a cosigner, etc. These factors can vary between lenders, and you might have a greater chance of getting approved with one than another. While these aren’t necessarily your only loan approval boosting options, they can be a good place to start. The Importance of Comparing Lenders An important factor in getting a personal loan is taking the time to compare lenders, allowing you to find the best interest possible. Most personal loan lenders have a prequalification process with a soft credit pull which shouldn’t impact your credit score. This can allow you to prequalify with multiple lenders and to compare the rates and terms you receive. The Top Personal Loan Lenders Best Egg search Best Egg Rates & Terms: Loan amounts: $2,000-$5,000 Time to funding: As quick as 1 business day after approval and verification Origination fee: 0.99-5.99% Minimum income: $35,000 Minimum credit score: 600 Loan repayment terms: 36-60 months Rates (fixed): 5.99-29.99% APR On BestCompany.com, Best Egg is a consumer favorite, with 98 percent of reviews awarding the company 4 or 5 stars overall. "This was my second experience with Best Egg, and it was even easier this time around. They were fast, effective, and delivered the results and help I needed. Thank you!" - Eric, July 9, 2020 Best Egg’s personal loan services and options are competitive in the industry, accepting a lower minimum credit score than the majority of other lenders and offering low rates. Customers speak to these features in their reviews but also highlight the speed and simplicity of Best Egg’s application and approval process, in addition to superior customer service. Many customers say that they would recommend Best Egg to their friends and family. Read more Best Egg reviews FreedomPlus search FreedomPlus Rates & Terms: Loan amounts: $7,500-$40,000 Time to funding: Within 48 hours of approval Origination fee: 0-4.99% Minimum income: undisclosed Minimum credit score: 620 Loan repayment terms: 24-60 months Rates: 7.99-29.99% APR With 90 percent of customer reviews awarding FreedomPlus 4 or 5 stars, the company could be a good choice for your personal loan needs. Many reviews highlight great experiences with customer service in which they received the help they needed in a timely and professional manner. On the flip side, some reviews also detail bad experience with customer service in which they were told conflicting information and did not receive the help they wanted and/or expected. Beyond customer service, customers do highlight speed and simplicity in the FreedomPlus application and approval process. "It was easier than I thought it was going to be to get the loan. What a relief to get the help to pay off my credit card debt. Customer service rep, Terrance, was very helpful and informative. FreedomPlus so far so good." - Jessica, October 31, 2019 Read more FreedomPlus reviews SoFi search SoFi Rates & Terms: Loan amounts: $5,000-$100,000 Time to funding: undisclosed Origination fee: none Minimum income: none Minimum credit score: 680 Loan repayment terms: 24-84 months Rates: 5.99-20.69% APR (with AutoPay) SoFi is another top personal loan contender, pulling in 4 and 5 star reviews from 96 percent of customers who have left reviews on BestCompany.com. It is important to note that the majority of reviews are somewhat outdated, but many of these reviews highlight a quick and easy loan process and low rates, in addition to responsive and helpful customer service. "Quick, easy loan process and competitive rate. The customer service throughout the process has been fantastic! Immediately answered my calls and provided solid info. Much easier to navigate than any other loan." - Matt, December 14, 2018 Read more SoFi reviews Compare Personal Loan Lenders Now that you know what to do and look for before taking out a personal loan, read complete reviews and what customers have to say about top personal loan companies. Compare