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Everything You Need to Know About Personal Loans

Taking out a personal loan can be a big decision with many factors to consider. In this comprehensive guide, we’ll explore personal loans in-depth including different types of loans, factors that impact interest rates and approval, tips for selecting the right lender, understanding terms and conditions, and reviews from actual customers. By the end, you’ll have a solid understanding of how personal loans work and how to choose the best option for your unique situation.

Types of Personal Loans

Personal loans come in several different varieties. Knowing the main types can help you select the right loan for your needs and situation.

Unsecured Personal Loans

The most common type is an unsecured personal loan, which does not require you to pledge collateral like a car or property. Without collateral, lenders view unsecured loans as riskier since they have no asset to seize if you default on payments. As a result, interest rates tend to be higher.

However, unsecured personal loans are easier to qualify for since you don’t need to own valuable assets. Many online lenders offer convenient unsecured personal loans that can be approved and funded quickly. Loan amounts typically range from $1,000 to $50,000 with repayment terms of 1-5 years.

Secured Personal Loans

If you own assets like a car, RV, or real estate that you can leverage as collateral, a secured personal loan may offer lower interest rates since lenders see it as less risky. The collateral acts as security that the loan can be recovered through repossession or foreclosure if needed.

Secured personal loans usually require a down payment of around 20% of the asset’s value. You can use the loan money for any purpose while still enjoying lower rates. Just be aware that you risk losing the secured asset if you fail to repay the loan.

Credit Card Balance Transfer Loans

These specialized loans allow you to consolidate credit card debt onto one loan at a fixed interest rate that’s often lower than your average card rate. Many cards charge high variable interest rates on revolving balances, so a credit card balance transfer loan is useful for reducing long-term interest costs. Just be sure to avoid making new charges on the paid-off cards.

There’s a lot more to explore regarding loan types, but this covers some of the major options available. In the following sections, we’ll dive deeper into factors like rates, terms, approvals and tips for choosing the best lender.

Factors Impacting Interest Rates & Approval

When shopping for a personal loan, the interest rate and chances of approval will depend significantly on your individual financial profile, credit history, and the lender’s own underwriting criteria. Here are some key factors considered:

Your Credit Score

Primary factor impacting rates. The higher your credit score typically means lower available rates. Most experts say 720+ is ideal for the lowest rates on personal loans. Consider checking your report and correcting any errors prior to applying.

Debt-to-Income Ratio

Measures how much debt you carry compared to your income. A high ratio over 40-50% means higher risk of nonpayment, so rates would be higher. Pay down other debts or wait to apply if your ratio is too high.

Employment History

Length of your current job and time spent at the same employer indicates stability to lenders. Short or sporadic job histories raise red flags and risks for higher rates.

Loan Term Length

Shorter 1-2 year terms cost less in total interest but higher monthly payments. Longer 3-5 year terms spread costs over more time but you’ll pay more total. Choose what fits your budget best.

Verifiable Income Source

Lenders need proof of how you’ll repay through pay stubs, tax returns or bank statements. Self-employed or those with commission incomes may face tougher approval standards.

Collateral for Secured Loans

As mentioned, secured loans use collateral which reduces risk of default so interest rates can be lower than an unsecured option. Make sure collateral is unencumbered by other liens.

These are some of the major factors under consideration when applying for a personal loan. Managing your profile in each area can help lower your interest costs and boost approval odds over time.

Choosing the Right Lender

With so many personal loan providers in every local market and online, selecting the right one is important. Here are some recommendations for choosing a lender:

Compare Multiple Rate Quotes

Use a marketplace like Credible to view rates from multiple lenders at once without dings to your credit report from numerous applications. Shop around and negotiate if needed.

Check Loan Terms and Fees

Pay attention not just to rate alone but prepayment penalties, late fees and more. Are origination fees a percentage or flat amount? How are repayment terms structured?

Research Lender Background

Look into how long they’ve been in business, loan approval rates, licenses and Better Business Bureau reviews to ensure you’re dealing with a reputable operation. Consider online reviews.

Consider Online or Brick & Mortar

Online lenders offer speed, convenience and often lower rates due to lower overhead. But in-person lenders provide hand-holding assistance applying & questions. Which fits your needs?

Understand Repayment Options

Will you make fixed payments or have adjustable/interest-only periods that could rise later? Look for flexible options to pay early without penalty if needed.

Check for Customer Support Resources

Loan servicing, account access and helpful borrower education tools matter too. Research how each lender treats customers over the long-term.

Doing thorough due diligence on these factors will help you identify personal loan providers that fit both your financial needs and peace of mind. Let’s next look at specific loan terms.

Understanding Key Loan Terms

Before agreeing to any loan, carefully reviewing terms and disclosures is essential to avoid surprises. Key terms to understand include:

• Interest Rate: Usually fixed or variable. Calculate total interest costs over full term.

• Origination Fee: One-time fee for application processing. Should be reasonable, less than 1-2% preferred.

• Repayment Term: 1-5 years typical. Shorter saves total interest but has higher monthly payments.

• Payment Amount: Fixed monthly installments include both principal and interest accrued that period.

• Late Fees: Amount charged for missed payments, often a percentage of missed amount.

• Prepayment Penalty: Some lenders charge to pay off early, so shop around for a break even to avoid.

• Grace Period: Time before late fee assessed, usually 5-15 days depending on lender.

• Autopay Discount: Many lenders shave 0.25-0.5% off rate for setting up autopay from your bank.

Taking time to carefully review contracts and disclosures is crucial for understanding exactly what you’re signing up for financially. Don’t hesitate to ask lenders any questions before finalizing your loan.

Customer Reviews of Top Personal Loan Providers

The experiences of past customers offer valuable insight into various lenders. Let’s look at a few top rated personal loan providers and their customer reviews:

Eloan

Known as a pioneer in online lending, Eloan has funded over $22 billion in loans since 2000. Based on 311 reviews on Credit Karma, they earn an impressive average rating of 4.4 stars. Positives include fast approval process, low rates and high preapproval amounts up to $100,000. Some complaints cite poor customer service responses.

LightStream

A division of Truist Bank, LightStream personal loans range from $5,000 to $100,000. 720+ credit scores get the best rates around 5-7%. With over 700 reviews on NerdWallet, they hold a strong 4.6 star average. Satisfied customers praise ease of use, speed and lack of origination fees. A few note high credit requirements.

Laurel Road

Specializing in student loan refinancing, Laurel Road also offers personal loans up to $100,000. Positive reviews on Credible enjoy the streamlined application and fast funding times. Rates start around 6.49-24.99% variable. Drawbacks involve fewer financing options than competitors. Still, good choice if you need a simple unsecured loan.

Upstart

An AI-powered lending platform, Upstart prides itself on considering alternative data to traditional FICO scores. Loan amounts from $1,000 to $50,000 with rates averaging 6-36% fixed. Based on over 1,000 Trustpilot reviews, they maintain a strong 4.3 average rating for approval of higher-risk borrowers overlooked elsewhere. Hassle-free application praised.

Clearly, customer feedback can provide an invaluable perspective on the true experience of using each lender. Reading reviews is highly recommended as part of your selection process.

In Summary

Choosing the best personal loan requires weighing your needs, researching options thoroughly and understanding all terms and reviews. With careful planning and due diligence, a personal loan can be a simple and effective way to consolidate higher-rate debt, cover emergency expenses or make large purchases more affordable.

If after reading this guide you feel ready to apply, I’d recommend using a lending marketplace like Credible, LendingTree or NerdWallet to easily compare multiple lenders at