Everything You Must Learn About Personal Loans
Personal loans are the first and foremost solution opted by most people across the world to cover huge expenses or pay off their debts. But before you choose to take personal loans for covering your payments, you need to understand it to the core. In this article, we will discuss every single aspect related to personal loans.
A personal loan that is not secured is like a fixed rate loan without a collateral that is repaid slowly in the form of monthly instalments over a given time period that varies according to the loan amount.
Likewise, interest rates applied on personal loans also vary based on factors such as your credit card score and the type of lender you choose. Lenders consider various factors such as credit report, credit score and also the debt-to-income ratio of the borrower before they choose to go ahead with the loan. If eligible, you can get personal loans from independent unions such as online lenders, credit unions and banks.
Borrowers who have good credit scores get lowest interest rates even for lager loan amounts. Additionally, they also get the widest option to choose from, especially while shopping for personal loans. However, borrowers with a fair or bad credit score are forced to search the market a little harder to get personal loans and pay a comparatively higher interest rate.
There are online lenders who specifically target the low-credit borrowers, by offering them personal loans with interest rates between 18% and 36% APR. The chances of having your loan approved increases if you have a steady income, long credit history and low debt.
Calculating your Interest Rate
The interest rate varies greatly from lender to lender. It also depends on your credit history and your ability to repay the loan. However, here is a small description to help you understand what interest rates look like for personal loans.
| Credit History | Score Range | Estimated APR |
| Excellent | 720 – 850 | 13.9% |
| Good | 690 – 719 | 18% |
| Fair | 630 – 689 | 21.8% |
| Bad | 300 – 629 | 27.2% (*Lowest scores might not qualify) |
Before You Buy A Personal Loan
• Compare all your loan options: The market offers personal loans based on various factors. Thus, it is best to compare all your available loan options. For a good credit score, there are lenders who offer personal loans below 5% APR. However, if you qualify for 0% interest credit card to pay away your balance within the time period, then there is no better option than choose the credit card for paying away your loans.
• Calculate total loan payment amount: Get a clear idea about the payment by calculating the loan payment amount based on the range of interest rate. This will give you a clear idea of what to expect when you go personal loan shopping.
• Co-signer: If your credit score is bad, try finding a co-signer to help you. A co-signer with better or good credit score can act as a boon for you by carrying you through the storm and helping you with their credit score get a better interest rate.
• Secured Loan: Try getting a secured loan by using your savings account, car or any other asset as your collateral. This will help you get a lower interest rate.
• Build credit score: Plan what you can and take necessary actions to build your credit score. Better the credit score better are your chances to qualify and get a personal loan at a comparatively more affordable rate.
• Assess your overall financial status: Take a step back and analyse your overall financial status. With a little financial planning, personal loans work best for their borrowers. If necessary, borrow money to pay off your combined debt, but only if you think that this will help you to pay away your debt more easily. And if you think that borrowing money will only further add more stress to your financial condition, don’t borrow any money. Also, consider all the debt-relief options that are available to you, if your current debt amount is huge.
Compare Multiple Personal Loan Offers
After your initial research and understanding, if you think that taking a personal loan is a good choice for you, make sure that you compare the interest rates offered by the multiple lenders. A personal loan with the lowest APR is considered the least expensive and is hence, the first and foremost option of all borrowers. Almost all lenders allow their probable borrowers to see the estimated interest rates for their personal loan amounts without affecting your score. Thus, it is always wise to check and compare the different offers.
If your credit score is good and you have a good relation with your bank, it is best to check the loan options that are offered to your from your current bank or similar credit unions. Check the names of different personal loan offering banks.
Use NerdWallet’s lender market for comparing the interest rates offered by the different online lenders all at once. You will receive your loan amount as quickly as next day, if you qualify for the loan.
Important Note:
APR – Annual Percentage Rates, monthly payments and the loan term, are all estimated figures based on the analysis of your provided information, data provided by the lenders or availed from public data. The loan information provided here is without any warranty. Also the estimated APR or other related loan terms are not binding to the loan details. Lenders provide personal loans based on the borrower’s credit score, the APR range and other factors. Consumers must understand that only borrowers with an excellent credit score will only qualify for the lowest interest rates available. A borrower’s actual APR directly depends on the different factors such as loan term, credit history, desired loan amount and borrower’s credit score. All personal loans are hereby subjected to credit review and authorization.
