So, you’ve thought carefully about taking out a personal loan, including weighing the pros and cons of personal loans versus credits cards versus secured special-purpose loans. But now that you’ve decided to take out a personal loan, do you know where to look to find all your available options? Most people who think of personal loans automatically think of going to the same bank or financial institution where they keep a checking or savings account.
And while that could very well end up being the best option, these days a smart borrower will shop around for the best rates and terms before committing to a personal loan. Not only that, but gone are the days when you had to go to a brick-and-mortar institution to get a loan. These days, you can qualify for a loan online without even leaving your home, and get funds deposited into your bank account as early as the next business day.
Traditional Banks and Credit Unions
This is the option most commonly used, and probably where people first think to check when they’re shopping around. And, it makes perfect sense. In fact, the financial institution where you do your banking should be the first place you inquire about interest rates and loan terms.
The benefit to taking out a personal loan there is that they know you already, and some banks will take into account your positive banking history with them when deciding whether to give you a personal loan. And although most personal loans are unsecured, a bank may be willing to give you a lower rate if you “borrower against” a savings account or CD account you currently have with them. Credit unions, which are run as member nonprofits, can offer even lower rates to their members on personal loans than traditional banks.
There are dozens on online lenders that are willing to give out personal loans based upon no more than a credit score, social security number, and brief questionnaire. Other lenders like SoFi and Prosper will look at a variety data other than credit score. And many of them offer quick and easy online applications and will deposit funds into your bank account in as soon as 24 hours or the next business day. But be forewarned that typically their interest rates will be higher than traditional banks and credit unions – in some cases, much, much higher.
Personal loans offered online can reach interest rates into the 20s and even 30s. Some loans come with terms that are not always intuitive or transparent – such as low payments that turn out to be due twice a month, so that while the payment itself is low, you’re forced to make two every month. Also, the rules governing personal loans differ by state. Some states, such as Nevada, tend to allow more predatory lending practices and higher interest rates. If you shop online for loan products, know that you won’t necessary enjoy any interest rate limits or other consumer protections that your state has, because the company you’re doing business with might not be located in the same state that you are in.
A relatively new option for obtaining personal loans is through peer-to-peer lending. In peer-to-peer lending, websites connect those seeking personal loans with other individuals seeking to lend money. One difference between this type of lending and regular online personal loans obtained from companies is that the borrower is typically expected to provide a greater amount of information about themselves and the purpose of their loan.
Investors in peer-to-peer lending are actual individuals, and get to make a conscious decision about whether to lend to a particular person applying for a loan. Be prepared to make a case for yourself and the reason for your loan, by supplying a greater degree of non-credit-related details about yourself and what you plan to do with the funds once you receive them.
Author: Jeff Gitlen
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