How to Get a Personal Loan»

How to Get a Personal Loan

Your Guide to Finding a Loan and Getting the Best Rates Online

Are you in need of a personal loan?  Looking for the best personal loan rates?  

Before you start comparing personal loan rates, be sure you fully understand the types of personal loans available.  Being stuck in a loan that isn’t the best fit for your situation, can really suck.

Most personal loans are unsecured loans, meaning that they are not protected by collateral such as a house or a car. Most lenders check credit history in depth to decide whether or not a personal loan is given, how much is given, and how high or low the interest rate should be, based on the lender’s preference.

Personal loans are taken out for a variety of reasons, often involving educational, pay off medical debts and expenses, and as home improvement loans.   

Here are the main types of personal loans:

Unsecured Personal Loans

Unsecured personal loans are typically the most common type of personal loan consumers opt for.  These are the most common types of personal loans. Unsecured loans, as stated above, are not protected by a car or a house.

This fact makes lenders extremely cautious of loaning money because there is no collateral to fall back on if the borrower fails to pay.

Your credit score is what the loan terms are based on, and depending on how good or bad your score is, the interest rate could be anywhere from 5 percent to 36 percent and the payments could be spread out from 1 to 7 years or longer depending on the lender’s policies.

Small Personal Loans Online

Small personal loans are typically defined as loans from $1,000 – $5,000.  If you have good credit and need money quickly, this unsecured loan option may be a good fit for you.

Small personal loans also typically have a lower interest rate, which is good news for you.

If you have bad credit, you’ll need to shop around and find a small personal loan lender that will work for you.  This type of personal loan also helps to build or rebuild credit, as long as you make on-time payments.

Low APR Interest Personal Loans

It shouldn’t come as a shocker that people with good/excellent credit are typically the ones offered low interest personal loans.  If you have bad credit, you should explore other options.

Debt Consolidation Loans

Debt consolidation loans are used to pay off multiple debts with one monthly payment, usually consisting of a variety of personal loans. Debt consolidation has lower interest rates and allows the borrower to make one consistent monthly payment as opposed to multiple payments.

These loans are perfect for people with multiple debts because it simplifies their monthly payments with one simple payment.

Personal Line of Credit

This type of credit is known as revolving credit. It relies more on a credit card rather than a loan. For example, if a person’s car breaks down and needs thousands of dollars of repairs, that individual can take out a credit card through that car company, get approved for a certain amount, and cover the damages of the car on a monthly payment as opposed to paying it in full out of pocket.

One missed payment, however, would result in an interest rate being applied to each already made payment from the start of the loan.

First-time borrowers would benefit from opening a revolving credit line. It’s a great way to start building credit because the company does not do a credit check or require a credit history like many other lenders, and if done properly and within the no-interest time period, the borrower will not have any extra payments and will have a great starting credit score.

Medical Loans

Medical costs are some of the most expensive costs out there. It’s the primary reason many people opt for medical loans.  A simple trip to the emergency room can be upwards of 4,000 dollars just cause of strep throat.

Many times, medical costs occur when the insurance companies do not cover the expenses. Some of these expenses include orthodontia (braces), reconstructive surgery (breast, nasal, ear, and hand), fertility treatments, and bariatric procedures (weight loss surgery loans).

Most of the time insurance companies will not cover these expenses because they are seen as a luxury as opposed to a necessity. Personal loans are often used to pay off these expenses.

Credit Card Cash Advance

The borrower can visit a bank or an ATM with his or her credit to take out cash in certain circumstances. It is a very convenient way of getting money out; however, it will cause the interest rates to rise for that withdrawal as well as requiring a cash advance fee as low as 5 dollars and as high as 5 percent of the total loan amount.

Student Loans

Student loans are always appealing to the eye because they often cover the total cost of tuition; however, they add up very quickly if the student keeps taking them out, especially if they stay in school for longer than the normal 4 years.

If a student is considered an independent student, more loans will be offered. Student loans consist of a variety of loans, often falling into two major categories; federal student loans and private student loans. Each of these loans aids the student in attending college with tuition, housing, meal and supplies costs.

Federal Student Loans

  • Federal Stafford Loans: these loans are borrowed from the government or a financial institution (federal banks, credit unions, insurance companies) directly. The subsidized loans provide a long-term loan depending on what the student needs. The interest rate is low and during the student’s enrollment, the government covers the interest rate. The unsubsidized loans are extra loans that benefit the student.
  • Federal Plus Loans: these loans depend on the student’s individual credit score and often have very low interest rates; however, as opposed to the subsidized and unsubsidized loans where the repayment plan starts 6 months after graduation, federal plus loans require the repayment plan to start as soon as the student’s graduation date.
  • Federal Perkins Loans: these loans are reserved for families with a very low income and have extremely low interest rates. From a family that lives paycheck to paycheck, this loan is ideal for the student. The risk here is that these loans can greatly affect the borrower’s credit score if the amount is not paid which is something the other loans do not affect.

Private Student Loans

Private loans are taken out should the student not qualify for federal loans, which is very unlikely. In the case that it does happen, students can reach out to their bank or credit union and take out a personal loan to cover tuition costs.

These types of loans require the student to have a decent credit history or a cosigner. The interest rates are very high but have lenient limits, meaning that the student can borrow more money than with a federal loan but will end paying back a lot more.

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Secured Personal Loans

Secured personal loans are protected by collateral. For example, a mortgage is protected by the borrower’s house and a car payment is secured by the title. If you default on the loan, the lender can seize your assets in question.

The interest rates are lower for secured loans because lenders are less cautious when loaning money since they have collateral (house, car, etc).

Auto Loans

Car loans are a lump sum of money taken out to purchase a car. Generally, a borrower will only apply for the car loan, but sometimes that individual will take out personal loans to cover the costs. Every car loan is set for a specific period of time, ranging anywhere from 24 months to 60 months, and sometimes even longer than that.

This type of loan is also known as financing. Car loans consist of the original cost of the vehicle, plus a multitude of fees and taxes. Many times borrowers will lease a car with no down payment but high-interest rates and monthly payments depending on how new the car is. It is best to budget everything out before taking out a lease on a car.

Home Loans & Mortgage Refinancing

First time home buyer loans are geared towards people who have never owned a home and are trying to get away from an apartment. They are appealing because of their low interest rates, monthly payments, and down payments. They can also be used as a home renovation loan. Here are 5 types of home loans:

  • FHA Loans: FHA (federal housing administration) loans are protected by the federal government and often offer a low down payment requirement of 3.5 percent and lower closing costs than other loan options. FHA loans have a more lenient credit requirement since they are dealing with first-time buyers who most likely have a thin credit history. The appeal is the incredibly low down payment requirement. You can find an FHA lender here.
  • USDA Rural Development Loans: USDA loans allow the buyer to skip the down payment costs altogether by lending them the full purchase price of the house in question. Closing cost cash is necessary for funding escrow, but a lack of down payment costs is heavily beneficial and appealing to a first-time buyer. You can go here to see if you’re eligible.
  • Home Equity Loan: This is another loan that allows the owner to borrow against the equity of a home. But instead of a revolving credit, this loan is a lump sum of money. The amount is determined by the value of the property which is determined by the lending institution. Note:  home equity loans usually require the borrower to have an excellent credit history. Tip: check your credit score for free to see where you stand.
  • Home Equity Line of Credit (HELOC): This type of loan allows the homeowner a revolving credit on his or her house. The owner can borrow against the equity of the house (up to 80 percent of the home’s value) minus the amount of the loan. A home equity line of credit does not pay off the original mortgage.
  • Mortgage Refinancing: mortgage refinancing is used when the interest rate or monthly payment becomes too high for the borrow to pay. Refinancing could lower the interest rates and monthly payments altogether. The first loan is paid off, allowing the second to be created.

Home Improvement Loans

Home improvement loans are unsecured, personal loans that are used to fund renovations and home repairs. Many times these loans are taken out when renovations want to be done in an already owned house, or when a buyer is purchasing a fixer-upper home which is a cheaper, run-down house.

  • FHA 203k Renovation Loan: When buying a run down and cheaper house on the market, the idea is to fix it up and raise the cost of the home or turn it into a dream home. With the FHA 203k loan, buyers can finance the remodeling costs directly into the mortgage. The monthly mortgage will increase, and borrowers would have to pay the 3.5% down payments costs with all renovations included, but the house would be fixed by professional contractors and allow the buyer to live in the house of their dreams. This also does not require the buyer to take out additional loans to pay for the renovations themselves.

Payday Loans (Predatory Lending)

Payday loans are small, short term installment loans, most likely consisting of a few hundred dollars, and gets taken out of the borrower’s bank account on their payday. This may seem ideal in a pinch, but if there are not sufficient funds in the bank on payday, another loan would most likely be taken out resulting in a debt cycle with climbing interest rates.

Payday loans online are incredibly risky and not recommended because often-times these involve loan sharks. Loan sharks online for bad credit have a reputation for being dangerous and unreliable, as they can raise the interest rates to over 500 percent and change the end date, causing the borrower to scramble for cash and destroy their credit.  Not a very good option for personal loans.

Stay away from payday loans!

Car Title Loans

Car title loans are generally never a good idea.  Title loans are a short-term, high interest rate loan that uses your free and clear car title as collateral.  GoLoans doesn’t recommend car title loans. In fact, the FTC even urges consumers to stay away from auto title loans and title loans. Read this guide on auto title loans for more information.

You may think this is your only option when you need cash quick, but this type of loan could potentially make you worse off.

What happens if you can’t pay on time and the only vehicle you have for transportation is the one now owned by a car title loan company?

Not to mention, the interest rates will kill your wallet.

Stay away from auto title loans!

Pawn Shop Loans

Pawn shop loans are another type of secured personal loan. Much like a mortgage or car payment where the bank relies on the house or car of a borrower should he or she default on the loan, a pawn shop loan uses personal items such as jewelry, electronics, instruments, etc. as their form of insurance should the borrower default.

If a payment is not made, the pawn shop vendor can sell the borrower’s item for profit when he or she sees fit. Rates for these loans are extremely high and can result in an APR (annual percentage rate) of 200 percent. They are most commonly utilized before an individual’s paycheck and used for groceries or necessities in a bind.

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Loan Sharks

Loan sharks are predatory lenders that prey on limited-income families by offering insane interest rates on personal loans.  Failure to make timely payments can leave the borrower in a very dangerous situation. You see, loan sharks are not governed by rules and regulations.  They make up their own rules. In fact, interest rates from a loan shark can be as high as 1,721%.

Loan sharks have been known to do very dangerous things to people in their debt, such as:

  • Constant harassment via phone, online and even at a person’s home
  • Threaten and do bodily injury or harm
  • Threaten family members

Bottom line:  stay away from loan sharks.  If you have been contacted by a loan shark, please report them to local authorities!

Fixed-Rate Loans

Fixed-rate loans offer a consistent interest rate and payment each month for the life of the loan. This makes it easier to budget and allows the borrower peace of mind since there is no need to worry about rising interest rates towards the end of the loan’s repayment. This loan is ideal for a long-term repayment.

Variable-Rate Loans

These types of loans follow the benchmark set by the lender or bank who is controlling the loan. As the benchmark varies, whether it rises or falls, the interest rate and monthly payment mirror that change.

This loan is best used on a short-term loan as it is unlikely to rise or fall within a short period of time. Variable-rate loans carry a lower APR than fixed-rate loans as well as a cap that can limit the amount a rate can change in a certain period of time and over the life of the loan itself.

Co-Signer Loans

Co-signer loans involve a person with low or no credit signing a loan agreement with someone who has good or excellent credit. The person with good or excellent credit is responsible for paying the loan in full if the individual with zero credit fails to pay. The individual with the better credit profile acts as an asset or insurance for the lender, resulting in possible lower interest rates and more advantageous terms.

Bad Credit Personal Loans

Bad credit loans include payday loans and car title loans. The lenders for these types of loans are considered to be predatory because they actively seek out individuals with bad credit and offer a no credit check guarantee.

They want the borrower to default on the loan so that the lender can profit from their losses. Banks and well-established lenders often turn down people with bad credit because they want reliable individuals to be able to pay back the loan in full.

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Guaranteed Personal Loans

Guaranteed personal loans are quick and easy to get if you have good/excellent credit.  If your credit score is isn’t that great, getting a guaranteed personal loan will be tough.  

  • Good/Excellent Credit – If you have good/excellent credit, a guaranteed personal loan will be easy.  Start researching and comparing personal loan interest rates and find a lender that meets your needs.  Be sure to compare APR, disclosures, payment terms and more to find the best loan for your situation.
  • Bad Credit – Just because you have bad credit doesn’t mean lenders won’t give you a guaranteed loan. They will. It’s just a matter of finding the right lender and right type of loan. In most cases, you’ll need some type of collateral to give the lender.  Don’t take the first loan a lender offers. Thoroughly research lenders, APR, disclosures and payment terms.

By Brian Allen

Brian Allen has been helping people make smarter financial decisions for over 10 years. As the Editor-in-Chief for Goloans, Brian writes about sage financial advice, "how to" articles, and reviews about lenders and creditors.

View all of Brian Allen's posts.

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