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5 Lenders That Offer The Best Personal Loans For Fair Credit

Good news! There are companies that provide personal loans for fair credit. That means you have a greater chance of borrowing money regardless of how less-attractive your credit standing is.

personal loans for fair credit

While there are a lot of lending companies that cater particularly to borrowers with good or excellent credit scores, there are also some that cater to those with fair credit. Thus, giving hope to those who have less-attractive credit standing.

Personal loans are one of the easiest, needless to say, most accessible types of loans.  Unlike auto loans or home loans, which have a very specific use, personal loans can be used for almost anything and everything. You can use it to purchase home appliances, for home renovations, travel expenses, debt consolidation, and more.

That said, it is not surprising that a lot of people apply for a personal loan. In fact, in a report published by the Chamber of Commerce, the United States has a total outstanding personal debt amounting to $143 billion.

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Furthermore, there are 21.1 million outstanding personal loans. For these personal loans, the average interest rates vary from 10% to 28% depending on the borrower’s credit score. Of course, the ones with higher credit are able to enjoy lower interest rates as compared to those with fair credit.

Yes, while there are lending companies offering personal loans for fair credit, it is also important to manage your expectations. As a general rule, people with a high credit score get lower interest rates, while those with fair or poor credit scores get higher interest rates.

But, do not lose hope just yet as there are lending companies that offer some of the lowest interest rates and the best loan terms for borrowers with fair credit. It’s just about finding them – thus, the need to shop around and compare deals from different lenders.

Having said that, as the title implies, we are going to share with you some of the companies that offer personal loans for fair credit. Needless to say, these are the ones with the best rates and terms possible.

But before we head to our list, allow us to share with you first a couple of very important information — particularly answering the following commonly asked questions:

  • How does a credit stack up?
  • How to get a personal loan with fair credit?
  • How much will it cost?
  • How to qualify for fair credit loans?

HOW DOES A CREDIT STACK UP?

First and foremost, let’s talk about how does your credit stack up.

While there are people who know about their credit score or credit standing, there are some who don’t. If you are one of them, the best thing to do is to take steps to find out your credit score. By doing so, you get to determine where you exactly stand — poor, fair, good, or excellent. Knowing where you stand will make your life easier as you can easily filter your search for personal loan lenders.

Each level of credit has a broad range of scores in it. For your reference, see below table of credit rating with the corresponding score range and average APR:

Credit Rating Credit Score Range Average Personal Loan APR
Poor 300 – 629 28.2%
Fair 630 – 689 21.3%
Good 690 – 719 15.0%
Excellent 720 – 850 9.8%

If you have no credit score yet or you belong under the poor or fair category and you want to take advantage of the perks enjoyed by those with good or excellent credit scores, the good news is, there are plenty of ways to help improve your credit score in a short time.

One of the best examples we can think of how you can build good credit is by paying loans in a timely manner. As mentioned, there are a few more ways, and it’s just about knowing which ones are accessible or doable for you.

HOW TO GET A PERSONAL LOAN WITH FAIR CREDIT?

Having a fair credit is quite challenging when applying for a personal loan as compared to those with good or excellent credit. Most likely, people with fair credit will have trouble getting a personal loan because personal loans are usually unsecured, which means no collateral required. Thus, the risk is greater.

So, to compensate for the risk involved, lenders charge a high-interest rate just in case the borrower does default.

So, with the challenges involved, how does one with fair credit get a personal loan?

Here are some tips to help you out —

Fix whatever you can.

First and foremost, pull your free credit reports. Check the reports thoroughly and make sure all transactions or items indicated are legit. Should there be suspicious items on the reports, make sure to immediately settle them.

Dispute the items and try to get them removed. By removing incorrect information from your credit reports can make a big difference to your credit score in just a matter of days.

In addition, if you have existing debts, make sure to pay them right away — if possible. Also, as much as you can, get your debt utilization ration below 30%. These actions will surely increase your credit score quickly.

Shop around and compare deals.

As we have said, there are a lot of lenders that offer personal loans for fair credit and in any credit for that matter. Shopping around before settling for a single lender is key to get the best rates and terms possible.

While it is sometimes tempting to just give in to payday loans, keep in mind that it might, in the end, put you into trouble if you get into something just to be able to get funds but only realizing in the end that you cannot afford to repay the loan/

At least, compare rates and terms of three different lenders.

If you want to learn more about how you can borrow money having bad or fair credit, check the video below by Money.Co.UK:

Check the interest rates and fees.

Interest rates and fees vary depending on the lender. Some may charge interest rates that are as high as 36%, while others may be lower.

Meanwhile, while some do not charge certain fees like origination or prepayment, others do.

So, when applying for a loan or when looking around for a lender, make sure to take these into consideration to help determine if you can afford all the fees and charges involving the loan.

HOW MUCH WILL IT COST?

In relation to the last thing tip we gave, it is important that as a borrower, you know how much the loan will cost you.

Again, knowing the fees, rates, and other charges involved will help you make an informed decision, which basically means, choosing the most ideal personal loan option for you.

Generally speaking, companies that offer personal loans to borrowers with fair credit charges a high interest rate. Depending on the lender, it could be around 20%.

Also, another factor that may affect your total payable amount is the term length. The longer your term is the higher your payment will be as compared to shorter loan terms, and the more likely you are to save money. Although of course, when you opt for a shorter-term that means paying a higher monthly payment.

HOW TO QUALIFY FOR FAIR CREDIT LOANS?

Now, let us talk about the things you need to qualify for personal loans for fair credit.

  • Credit Score – Although some lenders look at other factors to determine your qualification for a loan, most lenders consider a borrower’s credit score as a key consideration for approval of a personal loan or any type of loan for that matter. So, make sure to work on building your credit. Remember, having good credit allows you to take advantage of lower interest rates.
  • Co-Signer or Joint Applicant – Again, depending on the lender, some allow co-signers or joint applicant. Keep in mind, though, that when the option to have a co-signer or a joint application, that person has to have a good credit score to be able to avail better rates and terms.
  • Prequalification – Going through a prequalification process helps determine if you will qualify for a personal loan or not prior to the application proper. Going through this, you also get to see rates and terms you are likely to receive. This, for us, is ideal to help save time and effort.

COMPANIES THAT OFFER PERSONAL LOANS FOR FAIR CREDIT

As we have said earlier, there are many choices around. In fact, too many that in can get a little overwhelming to choose for some borrowers. So, to help you trim down your options, we are going to provide you with some of the companies that offer the best personal loans for fair credit. Our list includes the following:

  • Avant
  • Lending Club
  • One Main Financial
  • Prosper
  • Peerform
  • Upgrade
  • Upstart
BANK APR RANGE LOAN AMOUNTS
Avant 9.95% – 35.99% $2,000 – $35,000
Lending Club 10.68% – 35.89% $1,000 – $40,000
One Main Financial 18% – 35.99% $1,500 – $20,000
Prosper 7.99% – 35.99% $2,000 – $40,000
Upstart 8.13% – 35.99%. $1,000 – $50,000

AVANT

When it comes to lending platforms, Avant has definitely one of the best in the industry. It offers access to loans such as personal loans to borrowers with poor to fair credit — basically, the ones that banks usually turn down.

With Avant, there are no minimum credit or income required — which makes it ideal for anyone especially those with less-attractive credit scores.

To apply for a personal loan, all you have to do is visit the company website. Once your loan application is approved, the company disburses your funds in as soon as the next business day.

Avant offers personal loans that range between $2,000 and $35,000. Repayment terms vary from 24 up to 60 months.

Although there are a lot of good things to like about Avant, they do have downsides as well, which includes fees and charges. Its annual percentage rate, for example, ranges from 9.95% to 35.99%. The lending company also charges an upfront administrative fee of up to 4.75%. The fee may be deducted from your loan to avoid paying it out of the pocket.

LENDING CLUB

There are a lot of peer-to-peer lenders out there, but Lending Club is one of the best in the industry. Peer-to-peer lending refers to the process of borrowing money from individual investors instead of a financial institution.

Lending Club offers a variety of personal loans, auto refinancing, business loans, and lines of credit, as well as patient solutions, which is ideal for paying off pricey medical as well as dental procedures.

To qualify for a personal loan from Lending Club, you must have at least 600 credit score. Although based on records, most of its borrowers have credit scores closer to 700.

Unlike Avant, Lending Club may not be the best option if you need funds immediately. That is because you will have to wait until your loan is funded by the company’s network of peer lenders. The whole process may take up to two weeks.

With Lending Club, loan amounts range between $1,000 and $40,000 depending, of course, on your qualifications.

Repayment of the loan may be done over a three or five-year term. Meanwhile, the APR ranges from 10.68% to 35.89% depending also on your creditworthiness.

In addition, Lending Club charges an origination fee that falls between 1% and 6% of your loan amount.

Once approved, and funds are available, it may be received in as soon as four days.

ONE MAIN FINANCIAL

OneMain Financial is an ideal choice if you need a quick source of cash especially if you have a poor or fair credit score.

OneMain offers personal loans that can be used for various reasons like home improvements, travel, wedding costs, debt consolidation, as well as other personal expenses.

While a lot of OneMain Financial’s customers opt to apply online, those who prefer a face-to-face or traditional loan application process may do so by visiting one of the company’s brick-and-mortar branches (there are over 1,600 of them) located nationwide.

OneMain Financial does not have a minimum credit requirement, thus, making it one of the best choices if you have not-so-pleasing credit.

The company offers personal loans amounting from $1,500 up to $20,000. However, it is important to note that larger loan amounts require a first lien of a qualified motor vehicle.

When it comes to interest rates, OneMain charges rates that could go as low as 18% and as high as 35.99%. Like the previous companies on our list, OneMain Financial also charges origination fee that ranges from 1% up to 10% of the loan amount or a flat fee ranging from $25 to $400. This depends on your state laws.

PROSPER

Prosper is a peer-to-peer company that is ideal for those who cannot get a personal loan from traditional banks, at the same time, do not want to deal with high-interest rates, which are usually offered by payday loans and credit cards.

What’s nice about Prosper is that they look beyond what your credit score is. To qualify for a personal loan, you must, instead, make sure to meet certain requirements like having a debt-to-income ratio that is below 50%, must have at least five credit inquiries over the past six months, must have at least three open trades on your credit report, and lastly, you should have no bankruptcies on file.

Prosper provides personal loans that range from $2,000 up to $40,000. Meanwhile, when it comes to loan terms, they offer three or five years.

Prosper charges APR ranging from 7.99% up to 35.99%. Like the rest, Prosper also charges a one-time origination fee that ranges from 2.41% up to 5%. The fee, though, is already included in your APR.

Once your personal loan application is approved, funds are disbursed in as soon as the same day you apply, or within one business day.

UPSTART

Upstart is an online lender that was founded in 2012 by former Google executives. It is tagged as the first lending platform that uses artificial intelligence to automate the whole lending process.

Since it was launched in the market, Upstart boasts originating $3.2 billion worth in loans, and that 60% of which have been automated.

Unlike most lenders that use FICO score when approving personal loan applications, Upstart uses an advanced technology that does not only rely on a borrower’s credit score to quantify risk.

Although it uses such technology, Upstart still requires at least 580 Vantage or FICO credit scores in most states.

Upstart offers loan amounts that range from $1,000 up to $50,000. Meanwhile, they offer loan terms of either three or five years.

With regard to APRs, it ranges from 8.13% to 35.99%. In addition, Upstart also charges an origination fee ranging from 1% up to 8% of the loan amount.

Once approved, your money is disbursed within one business day.

FINAL THOUGHTS ON PERSONAL LOANS FOR FAIR CREDIT

Let’s face it, having poor to fair credit poses a lot of challenges among borrowers. More often than not, banks will decline personal loan approvals.

Good thing though as there are other options available – that includes online lending companies or marketplaces. More and more lending companies now are opening their doors to borrowers with a less-pleasing credit score.

But of course, as we have mentioned early on, borrowers must manage their expectations. With fair credit, you must expect that lending companies will charge you with higher interest rates as compared to those with good or excellent credit scores.

The key, however, to finding the best lending company to deal with is to find the ones that offer the best personal loans for fair credit and compare to determine which among them is the most ideal based on your preference and capacity to pay.

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9 Best Mortgage Lenders In The Country Today

The most ideal way to be able to find the right mortgage loan partner is to shop among the best mortgage lenders out there. By doing so, you are assured you get the best deals possible — the one that’s exactly what you need and can afford.

best mortgage lenders

Mortgage debt is the largest form of debt among consumers in the United States according to a report from Statista. As of 2019, the outstanding mortgage debt in the country was estimated at $16.01 trillion, and the number is expected to rise this year and the years to come.

Real talk – people want to eventually own their own home, and one of the best ways to attain that goal in as soon as possible is through a mortgage.

To be blunt, there is totally nothing wrong with that! In fact, it’s a good way to stay inspired and to keep working hard – knowing that you need to have enough money to pay for a mortgage loan, and eventually, pay it off so you can finally say, you own that home.

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Now, when it comes to how to get a mortgage loan, there are actually a lot of options out there.

There are so many lending companies, banking institutions that offer really good rates when it comes to a mortgage loan. Of course, there are several factors to take into consideration, but as long as you qualify, then getting a loan should not be a problem.

When it comes to choosing a “partner” though, for your dream home, it is important that you do not settle immediately to one lender.

As much as possible, you go shop around for the best mortgage lenders so you get to compare deals and come up with an informed decision.

Now, to help you come up with a list of lending companies to check out (because admittedly, it could be hard and overwhelming, at the same time, knowing there are so many choose from out there), we are going to give you our list of best mortgage lenders to date.

But before that, we are going to share with you some important information first about the mortgage – particularly the following:

  • What is a mortgage?
  • What are the major types of mortgages?
  • How to find the best mortgage lenders?

WHAT IS A MORTGAGE?

Before we even talk about the best mortgage lenders, we thought it’s important for borrowers to fully understand first what mortgage is all about.

A mortgage is a type of loan that a borrower can get from a financial institution or lending company. The money is specifically intended for purchasing a home.

Similar to other forms of loans, mortgage comes with an interest. When a borrower gets into a mortgage with a lending company, it’s tantamount to a promise that you are going to repay the amount of money you borrowed plus the accrued interest.

Unlike personal loans, a mortgage does have collateral. In fact, the house you buy using a mortgage automatically becomes the collateral. This means that if in case you fail to pay off the mortgage, the lending company has all the right to foreclose the property.

It is important to note that the loan does not become a mortgage up until it is attached as a lien to the property. Thus, the importance of paying the loan on time and according to the terms you agreed to.

WHAT ARE THE MAJOR TYPES OF MORTGAGES?

One thing’s for sure, not all mortgage products are equal to one another. While some have more stringent guidelines, others are not.

While there are lenders that might require a 20% down payment, others may require as little as 3% of the property’s purchase price.

Now, before you even seal a deal with a mortgage lender, it is also important that you are aware of the different types of mortgages available.

So, to give you an idea, below are some of the major types of mortgages available in the market today:

Conventional Mortgages

This refers to a loan that is not backed by the federal government but by Fannie Mae or Freddie Mac, two government-sponsored enterprises that buy and sell most conventional mortgages in the country.

To qualify for this type of mortgage, the borrower has to have a good credit history; stable employment, as well as income histories; and must have the ability to make at least a 3% down payment.

However, to be able to avoid the need for private mortgage insurance (PMI), generally, borrowers need to make a 20% down payment for the property.

Conforming Mortgage Loans

This type of mortgage loan is bound by the maximum loan limits that were set by the federal government. The limits depend on the geographical area.

Nonconforming Mortgage Loans

This type of mortgage loan cannot be sold or bought by Fannie Mae and Freddie Mac because of the loan amount or underwriting guidelines set. The most common type of non-conforming loans though is what they call “jumbo” loans, which is referred to as it is because of the loan amount usually exceeding conforming loan limits.

Government-Insured FHA Loans

This type of mortgage is ideal for low-to-moderate-income buyers purchasing a house for the first time who can’t qualify for a conventional loan. This type of loan is insured by the Federal Housing Administration.

Government-Insured VA Loans

This one’s specific to qualified military service members, veterans, and their spouses. For this type of loan, the U.S. Department of Veterans Affairs guarantees homebuyer loans.

Furthermore, borrowers are allowed to finance 100% of the mortgage with no down payment required.

Government-Insured USDA Loans

For this type of mortgage loan, the U.S. Department of Agriculture guarantees loans to help make homeownership possible for low-income buyers in the country’s rural areas.

This is ideal for homebuyers who cannot qualify for conventional loans, and have low income, and does not have enough money to pay for a down payment.

HOW TO FIND THE BEST MORTGAGE LENDERS?

Now that you already know what a mortgage is and what the major types of mortgage loans are, this time around, we’ll share a few important tips on how to find the best mortgage lenders in town.

Tip 1: Build a strong credit. Before you even start sending mortgage loan applications, make sure you check your finances and fix whatever needs to be fixed. Strong credit is the key to the best rates and terms possible.

Tip 2: Slim down your budget. Do not aim for a high-priced property if you do not have the right income for it. Narrow your budget to ensure you are able to pay off the loan without any problem.

Tip 3: Know your options. There are several types of mortgages. Make sure you are well-aware of them and that you know which one fits you.

Tip 4: Compare among lenders. As mentioned, do not settle with one lender immediately. Make sure to take time to shop around and compare.

Meanwhile, sharing with you a very informative video by Homebuyer’s School wherein they share tips on how to choose the best mortgage lender:

BEST MORTGAGE LENDERS IN THE COUNTRY

As the last tip say, compare lenders.

At this point, we are sharing with you some of the best mortgage lenders in the country today. Of course, there are so many options available. There are a lot of them. However, trimming down your options and focusing on the best ones is the key to get into the right deal possible.

So, here are the companies that we thought you should check out (we arrange the list alphabetically):

  • Bank of America
  • Chase
  • Citi Mortgage
  • Guaranteed Rate
  • New American Funding
  • Quicken Loans
  • Rocket Mortgage
  • SoFi
  • Suntrust
BANK MINIMUM DOWN PAYMENT BEST POSSIBLE RATE
Bank of America 5% 3.750%
Chase 3% 3.625%
Citi Mortgage 3% 3.125%
Guaranteed Rate 3% 3.750%
New American Funding 3% 3.500%
Quicken Loans 3% 3.99% (4.247% APR)
Rocket Mortgage 3% 4.56%
SoFi 10% 3.274%
Suntrust 3% 3.75% (3.8898% APR)

BANK OF AMERICA

Apart from offering a wide range of retail banking, the bank also offers various types of mortgages, which include adjustable as well as fixed rate mortgages, jumbo loans, VA, FHA, and the ““Affordable Loan Solution” mortgage”. The latter refers to a program that was launched in 2016 to specifically help low-income buyers to get to buy their first home.

When it comes to credibility, Bank of America has it being one of the biggest financial institutions in the country. Needless to say, they’ve been around the banking industry for a long time now.

As with the reach and availability, the bank has several branches across all 50 states, which makes it very accessible to borrowers. In addition, they have mortgage lenders who are available to walk you through the whole loan process.

Although Bank of American is a giant, you may still find a number of bad reviews on the internet. So, to make sure, it would be better if you do your own research and also consider talking to a lender at the bank to know more about their products and services, especially about a mortgage.

CHASE

Chase is another well-known bank in the country. When it comes to mortgages though, the bank has a major presence in this industry.

Apart from the fact that it has in-person mortgage experts in 30 states across the U.S. who are available to guide you through the loan process, Chase comes out on top of the lowest rate on fixed-rate mortgages as compared to other big lenders.

The bank practically offers any type of mortgage like adjustable-rate, FHA, VA, HARP, jumbo, and of course, fixed-rate.

Like Bank of America, Chase does have a special program called “DreaMaker Mortgage,” which is a mortgage grant that provides $3,000 assistance for either down payment or closing costs. More so, it does not have income limits, and that it provides down payment options for as low as 3%, which could be from gifted funds.

CITI MORTGAGE

Citi Mortgage is related to Citibank, which is one of the country’s largest banks. With that, it’s no wonder why they are able to provide mortgage options to almost anyone who qualifies.

Citi Mortgage is ideal for borrowers who opt for either an FHA or VA loan. But generally, the institution offers a diverse set of loan products as well as terms and relationship discounts, which actually make it a top pick especially among first-time homebuyers.

One thing that Citi Mortgage must be proud of, apart from their outstanding products and services, is the fact that they do have high customer satisfaction ratings.

GUARANTEED RATE

Guaranteed Rate is ideal for borrowers who have at least 620 credit score, solid credit history, and stable income but do not have enough money for a down payment.

This lending company offers various mortgages including FHA, VA, USDA, as well as various adjustable-rate mortgages and jumbo mortgages for purchase or refinance. They also offer cash out.

Although it has 170 physical offices across 50 states, Guaranteed Rate allows an online application, which makes the process easier.

NEW AMERICAN FUNDING

As compared to other larger mortgage lenders, New American Funding is family-owned. However, over the years, it has grown to be one of the top 30 lenders in the United States.

New American Funding offers various types of mortgages including home equity, reverse mortgages, jumbo, fixed, adjustable, HELOCs, FHA, VA, USDA, as well as refinance and purchase.

Unlike most lending companies, New American Funding uses manual underwriting to evaluate a borrower’s creditworthiness. By doing so, they get to evaluate the borrower’s finances in a more comprehensive manner.

Although that is the case, the company offers the online application, as well as rate quotes, document upload, and loan tracking. A pre-qualification process may also be done online, but make sure to follow up on the prequalification letter.

What’s nice about the company is that they offer competitive rates and that they also have first-time home-buyer programs, which obviously is something first-time homeowners can take advantage of.

New American Funding also works with both state and local agencies to be able to help buyers with regards to payment assistance.

QUICKEN LOANS

One thing that probably sets Quicken Loans apart from other lenders in our list is that it provides an easily accessible online application that automatically verifies a borrower’s income as well as employment. They also have mortgage advisors if you need one.

When it comes to loan terms, the lending company offers a wide selection of terms that range from five up to 30 years.

For borrowers who require an FHA-backed loan or products by Fannie Mae and Freddie Mac, you can easily walk away with a mortgage for a very low down payment of three percent.

Unfortunately, the company does not offer HELOCs (Home Equity Lines of Credit) or home equity loans. So, if you are looking at that, you better check other mortgage lenders instead.

Meanwhile, Quicken Loans only looks at a borrower’s credit score and debt-to-income ratio to qualify. Needless to say, the process is fairly straightforward. Often, the company provides an answer regarding the approval or non-approval of your loan application in just a matter of minutes.

ROCKET MORTGAGE

If you are looking for either conventional or government-backed mortgages, then Rocket Mortgages is one of the best options around. The company offers various loan types including purchase, refinance loans, jumbo loans, adjustable-rate loans, as well as fixed loans, VA loans, FHA loans, and USDA loans.

Just like Quicken Loans, Rocket Mortgage does not offer home equity loans or HELOCs as well.

Unlike other mortgage lenders, Quicken Loans is a self-service, online, mobile-friendly mortgage company. The company lets you know about the amount you qualify for in just a few minutes.

Although they promote online mortgage loan applications, they do have available lenders in case you have questions.

SOFI

SoFi is a leading online mortgage lender, which adds up to its credibility. It specializes in jumbo loans for borrowers who have a good income but does not have enough savings for a down payment.

SoFi offers a lot of perks — they do not charge an origination fee, no prepayment penalty fees, and to top it all, you can loan up to $3 million on either primary or secondary homes with a 10% down payment.

However, all these perks are only available for borrowers with excellent credit history and solid employment. Borrowers need to have a high range of income and must purchase or refinance a home in a state where SoFi is licensed to originate loans.

As with the whole application process, it could take as long as 30 days. But it’s going to be worth it anyway as long as you know you hit all the qualifications set by the company.

SoFi also offers a pre-approval process that won’t affect your credit.

SUNTRUST

SunTrust has a wide range of online mortgages with competitive interest rates.

You can opt for a 30-year or 15-year fixed loans, and 5-, 7-, and 10-year ARMs (adjustable rate mortgages), as well as jumbo loans.

For borrowers who do not have a standard 20% down payment or good credit history, do not worry as this lending company also provides other mortgage options like FHA, VA, and USDA Loans.

Furthermore, SunTrust also offers affordable loan programs, which they call as “Agency Affordable Financing,” which is made possible through Fannie Mae and Freddie Mac.

This particular program is ideal for homebuyers who can only pay a 3% to 5% down payment.

FINAL THOUGHTS ON BEST MORTGAGE LENDERS

You see, there are so many mortgage lenders out there. Needless to say, there are a lot of best mortgage lenders competing with one another, offering the best possible deals among borrowers.

While it may get a little overwhelming choosing one among a sea of options, it is, for sure, worth it and satisfying in the end.

So, have you decided which mortgage lender to deal with yet?

Keep in mind that choosing one among the best mortgage lenders is the best thing to do. That way you are assured of getting only the best deals and terms, needless to say, you get to enjoy a few other exciting perks.

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What Is A Personal Loan: Everything That You Need To Know

Understanding what is a personal loan will enable us to maximize the product to its full potential. As you know, a personal loan is one of the commonly used, needless to say, the most accessible form of loan for everyone.

what is a personal loan a comprehensive guide

Based on a report published by CNBC, the unsecured personal loan market in the United States hit an all-time high in 2019. It surged to “17 percent year over year to $138 billion, according to data from TransUnion“. In the same report, it stated that the digital-first financial technology or fintech companies are the primary drivers for the said increase, making personal loans available for everyone. Needless to say, making it easily accessible with just a click on their smartphones.

Furthermore, in data from the Chamber of Commerce, it says that the current total personal loan debt in the country has amounted to $143 billion, and just the same, fintech companies are to blame for the increased number. In fact, by Q4 2018, “fintech loans accounted for 38% of outstanding loan balances, compared to a mere 5% five years prior.

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But apart from the existence of fintech companies, which, according to Investopedia, refers to “the integration of technology into offerings by financial services companies in order to improve their use and delivery to consumers,” another major reason for the increase of personal loans in the country is the fact that personal loans can be used for almost anything.

You can use it for both necessity and leisure, for emergency purposes, or for something that you have been planning to purchase for a while now.

But what is a personal loan really?

While some of us may be knowledgeable about this very popular form of a loan, others have very little knowledge about, and that is precisely why we are going to share with you everything that you need to know about – personal loans.

To be specific, we are going to tackle the following essential information about personal loans:

  • What is a personal loan?
  • How does a personal loan work?
  • What are the different types of personal loans?
  • Who is eligible to apply for a personal loan?
  • How to get approved for personal loans?
  • What can a personal loan be used for?
  • Where to apply for a personal loan from?

WHAT IS A PERSONAL LOAN?

If you will search over the internet what is a personal loan over, you will find hundreds if not thousands of (mostly finance-related) sites with their own version of definition about the term. But, if you will examine each definition, they all basically mean one thing — it refers to the money borrowed from a lender, which could be a bank, a credit union, or an online lender.

The amount of money borrowed will be repaid with a corresponding interest, which could either be fixed-rate or variable-rate (we will discuss these terms further later on).

Generally, the interest rates on personal loans depend from one borrower to another, taking a lot into consideration the borrower’s credit.

Personal loans are installment loans, which means, you can pay it for a specific period of time depending on what you have agreed upon. It could be within x number of months or in some cases (especially when the loaned money is big), lenders allow x number of years to have it repaid. To put it simply, the money is issued right there and then, and the borrower has to repay the loan with a fixed payment over a predetermined loan period.

One more personal loan feature that makes it stand out from other forms of loans is that most personal loans are unsecured loans. This means that you do not need to provide any collateral to the lender.

However, unlike secured loans, the average interest rates on personal loans tend to be higher, but still lower as compared to credit card interest rates.

Before moving on, here’s a quick video by Keder Cormier wherein he discusses what personal loan is all about. It’s very informative, you should check it out by clicking the play button below:

HOW DOES A PERSONAL LOAN WORK?

Now that you already know what is a personal loan, this time we will discuss how exactly does it work.

We find it necessary that before you even get yourself into borrowing money through personal loans, you should make time to fully understand how it actually works. This will help spare yourself from confusion and making wrong moves or decisions with regards to personal loans.

So, as mentioned earlier, a personal loan is a type of installment loans like mortgage and auto loans. That means you borrow a certain amount of money, and then, you pay it back with an interest in monthly installments over a specific period, which usually ranges from 12 to 84 months.

Once you are done paying off the loan, your account will be automatically closed. Should you need more money, all you have to do is apply for a new loan. That’s basically how a personal loan cycle goes.

However, it is important to take note that the details vary from one lender to another, which is why it is important that you do your research first before you jump into sending a personal loan application to a financial institution.

There are three major details that you need to look into. These are:

  • Interest Rates
  • Repayment Period
  • Origination Fees

So, what are these all about? Read on.

Interest Rates

Earlier, we mentioned about fixed rates and variable rates. It’s time for you to fully understand what these terms are all about.

But first, know that interest rates vary from one borrower to another depending on the person’s credit. The better your credit is, the lower your interest will be. Otherwise, if you have thin or bad credit, expect to get a higher interest rate. Some of which may be as high as credit card rates, and in some cases, lenders may require you to have a co-signer for the loan.

Now, what is a fixed-rate, and what is a variable rate?

  • Fixed-rate is the most common type of interest rate among lenders. This basically means the interest rate does not fluctuate during the entire period of the loans. You basically make the same amount of monthly payment from day one of the loan periods. This allows borrowers to accurately predict their monthly payments.
  • Variable-rate, meanwhile, is not that popular, but it’s there. Basically, the interest rate charged on the outstanding balance depends on the market interest rates change. Thus, as a result, you may end up paying more or less.

So, as you can see, between the two, fixed-rate interest is the most ideal. No wonder why it is widely used by lenders as compared to variable-rate interest.

Repayment Period

Apart from the interest rate, another important thing that you need to look into is a personal loan’s repayment period or repayment time.

All lenders have their respective repayment periods depending on the amount of money borrowed or in other cases, on the borrower’s ability to pay off the debt.

Repayments vary — normally, 12, 24, 36, 48, or even as long as 84 months. While longer payment periods seem to be more convenient because it means lower monthly payments, this, however, also means you are going to pay more in interest.

Meanwhile, a shorter payment period, while it means higher monthly payments, results in lower interest rates.

It is also important to note that having an open loan or existing loan can affect your ability to get approved for other loans, or even for availing credit cards. This means, if you pay for a loan longer, you have to be open to face the consequences, which limits your ability in obtaining new credit.

Also, a lot of personal loans come with penalties for paying off the debt early, which is why between long-term and short-term loan periods, it’s best to take the shortest repayment period that you can afford.

Origination Fees

Origination fee refers to a fee a borrower needs to pay to his or her lender upon receipt of funds. Basically, the fee compensates the lender for expenses such as processing your application, as well as marketing.

Normally, the origination fee ranges from 1% up to 8% of the total amount borrowed. Although in some cases, there are lenders that charge a flat origination fee, while others do not charge anything at all. Again, it varies from lender to lender, which is why comparing lenders before you seal a deal is ideal.

The origination fee is only charged if the loan is approved and funded. So, if your personal loan application is denied, you should not be paying any origination fee.

Generally, lenders deduct the origination fee from the total approved loan amount. So, for instance, your personal loan amounts to $8,000. The lender charges a 2% origination fee, which in this case amounts to $160. Thus, instead of receiving the full $8,000 loaned amount, the borrower will receive $7,840 (origination fee is already deducted).

To be specific, the origination fee is charged to cover upfront costs such as the following:

  • Income verification with national databases
  • Credit checking with credit bureaus or other alternative sources
  • Reviewing your application

To put it simply, the origination fee may be determined based on the loan amount, the repayment period, the borrower’s credit history, as well as whether or not there’s a co-signer required, and the reason for the personal loan.

WHAT ARE THE DIFFERENT TYPES OF PERSONAL LOANS?

Part of understanding what is a personal loan is knowing and understanding also the different types of personal loans.

There are two types of personal loans. These are secured loans and unsecured loans.

What are these and what sets each other apart from one another?

Here’s a quick definition of the two:

Secured Loans

This refers to the type of personal loan that is backed by collateral like a certificate of deposit or a savings account. Basically, if the borrower is not able to make payments for the loaned amount, the lender has the right to claim the borrower’s asset as payment for the loan instead. Since the collateral reduces the lender’s risk, it’s normally easier to qualify for this type of loan. More so, lenders offer more favorable terms.

Unsecured Loans

Unsecured loans, meanwhile, refers to a type of personal loan that is not backed by collateral. Generally, lenders that provide or offer unsecured personal loans base whether the borrower qualifies or not for a loan on his or her financial history. However, the downside of unsecured loans is that they tend to have higher interest rates as compared to secured loans.

To be honest, it’s hard to say that secured loans are better than unsecured loans, or vice versa, because obviously, it depends on a number of reasons like if the borrower wants lower interest rate or if the borrower does have an asset that he or she can pledge as collateral.

It’s safe to say that determining which is better between the two will depend on the borrower. So, yeah, it all depends on you.

WHO IS ELIGIBLE TO APPLY FOR A PERSONAL LOAN?

By this time, you already know what is a personal loan, how it works, and the two types of personal loans. Now, it’s about knowing who is eligible to apply for a personal loan.

Generally speaking, a borrower’s eligibility for a personal loan depends from one lender to another. Each lender has their own set of requirements specified for personal loan applicants. Some of the common requirements include:

  • Must be a U.S. citizen or U.S. resident cardholder
  • Must be 18 years old and above
  • Must have a valid U.S. bank account
  • Employment details
  • Your monthly/annual income
  • Proof of identification

Furthermore, a borrower’s eligibility, as well as the interest rate he or she is quoted, will be based on two major factors, which are your credit score, as well as your debt-to-income ratio. We’ll discuss this further because these two are very important. These are the make it or break it factors of your personal loan application.

Credit Score

Every personal loan lender has the freedom to their own credit score requirements.

However, according to Fair Isaac Corporation (FICO), which is a company that offers a credit-risk model with a score, and over 670 credit score is considered as “Good,” while more than 740 credit score is “Very Good,” and 800 and more is considered as “Excellent”.

Unfortunately, while those borrowers with 670 and below credit score or no credit score may still qualify for a personal loan, they may either find it hard to get approval or get one but with a higher interest rate.

In some cases, though, creditors or lenders allow borrowers with low credit scores provided they have a credit-worthy co-signer, or they have an asset that they can use as collateral to their loan (this one will fall under secured loans though).

Just to give you an idea, personal loan borrowers with great credit scores may qualify for an interest rate under 5%, while those who are less-qualified or with low credit scores may get approval with an APR of over 30%.

You see, the difference is quite huge.

Debt-to-Income Ratio

Borrowers’ will find your debt-to-income or DTI ratio by simply dividing their total monthly debt payments by their monthly income.

For instance, if you spend $500 to debt repayment monthly, and you have an income of $2,500 a month, your DTI is 20%.

According to one of the major banks in the country, Wells Fargo, you are “looking good” if you have a DTI that is below 35% a month. Meanwhile, borrowers with a DTI of 36% up to 39% are put under the “Opportunity to Improve” category. Those who have over 50% DTI need to “Take Action” because they are likely to have very limited options.

HOW TO GET APPROVED FOR A PERSONAL LOAN?

In relation to the qualifications we mentioned earlier, we are going to share with you some secrets, rather essentials, to ensure your personal loan application’s approval.

As we mentioned earlier, the approval of personal loans varies from one lender to another. More so, the requirements also vary. However, the process is quite the same.

Lenders evaluate personal loan applications according to the person’s creditworthiness. Typically, this means lenders review the borrower’s borrowing history, as well as his or her income.

There are three major aspects that you need to work on if you want to get your personal loan application approved. These are:

  • Credit Score
  • Income
  • Collateral

Of course, we are going to discuss further each item for you to fully understand their importance.

Credit Score

It’s probably safe to say that checking the borrower’s credit score is mandatory among lenders. Lenders obtain a credit score to see whether or not you have already borrowed in the past.

Basically, a borrower’s credit report contains details about past loans, as well as late payments, and other public records that lenders might want to know.

In other cases though, lenders use “alternative” credit scoring tools like taking your history on-time rent as well as utility payments. These serve as their predictor of how you are going to repay a loan.

Income

Yes, how much you earn matters as well when applying for personal loans. By knowing the borrower’s income, lenders get to determine whether or not the borrower does have the capacity to pay off the loan.

Lenders may ask details about your income, as well as your employment.

Furthermore, knowing your income will help lenders calculate your debt-to-income ratio to ensure that the loan payment will not consume too much of the borrower’s monthly income.

Collateral

Just to reiterate, collateral is only necessary if you are applying for a secured loan. Unsecured loans do not require such.

The term collateral refers to any asset (a property, a savings account, etc.) that a lender accepts to secure a loan. If the borrower is unable to make payments for the loan, the lender may take the collateral to serve as a payment for the loan instead.

WHAT CAN A PERSONAL LOAN BE USED FOR?

By now, you have probably understood so much about what is a personal loan. But apart from what we have already discussed, it is also important that you know in what particular circumstance you can use a personal loan.

Generally speaking, you can use a personal loan for almost anything and everything under the sun. Unlike other types of loans, a personal loan covers almost any probable reason that you will need extra money.

But to be more specific, here are some of the common reasons where personal loans are used for:

Debt Consolidation

Some of us tend to have overflowing debts, and sometimes it gets to a point when it’s already too much to handle. And before you even think about just running away, one thing you can do to get away with so many debts is to consolidate them — especially if your current creditors are charging you a higher interest rate.

You can use a personal loan to consolidate old debts in just one lower rate. This will definitely work to your advantage. More so if the lender does not charge an origination fee.

Here’s the thing, once you have decided to consolidate your loans, make sure to pay off the current personal loan first. Consolidating loans can be quite tempting, but with determination and discipline, you will surely avoid getting into the same situation over again.

Student Debt

Some people use a personal loan to pay off existing student debt, although, to be honest, sometimes it’s not really a wise idea. It’s because the student loan interest rate is typically lower as compared to other types of loans — including a personal loan.

However, when you are left with no other choice, you can always opt to apply for a personal loan. Just make sure though that you are dealing with a lender that provides the lowest possible interest rate.

Medical Bills

Emergency happens, and oftentimes, it happens when we least expect it, and worse, when we are not financially ready for it. Good thing is, personal loans can help you when medical bills are beyond what you can afford.

However, before anything else, make sure to negotiate the bills first. Some healthcare providers may be able to give you a discount, which will surely help lessen the financial requirement. Another thing is to ask the healthcare provider if you can pay off the medical bills in installment. But as they say, when all else fails, a personal loan may be what you really need to pay off the bills.

Small Home Improvements

You know, sometimes we tend to find ourselves wanting some change in our homes, but we cannot pursue it because of the lack of budget. But guess what? Personal loans can also be used for home improvement purposes!

While it is more popular to use home equity loans for home improvement projects, some people would prefer using a personal loan instead especially if you do not really need a significant amount of money.

A personal loan intended for home improvements could actually be less expensive. Needless to say, it’s easier to apply for.

Expensive Purchases

There are times when we want to buy something but couldn’t because we are financially incapable or simply because we do not have cash. The thing is, a personal loan actually lets you use the money for whatever purchases especially expensive ones of course. Don’t worry you won’t be judged.

But of course, it is always best to make sure that you are only spending money rather than borrowing money for worthy purchases. Worthy meaning something that you genuinely need, and not just because you want that item for yourself.

Travel or Vacation

Dreaming for a fabulous vacation? You surely can do that! And yes, you can apply for a personal loan for that purpose.

Ideally, you should save up for your dream travel or vacation. However, there are instances when you need to go to a place, and saving up would cause a delay. Thus, a personal loan might just be a great idea for you.

Car Financing

Some people prefer personal loans over car loans because car loans are secured loans, which means the car you bought automatically becomes collateral. So, in case of failed payments, your dream car will be repossessed by the lender.

More so, personal loans do not require a downpayment, while auto loans usually do. So, unless you score a low-rate auto loan, a personal loan would be more ideal to buy yourself a new car.

Small Business

Technically, a personal loan is not designed for business purposes. However, there are entrepreneurs especially small ones who prefer using a personal loan in funding their business’s launching or operating costs. Also, some online entrepreneurs who need small capital would rather use a personal loan over a more appropriate loan product.

Wedding Cost

Ideally, when getting married, you use your savings to fund this life-changing event. However, in some couples, this is not the case. Thus, the option to apply for a personal loan to help get through their desired or dream wedding.

Let’s face it, even the simplest wedding possible still need a penny to push through. So, when you really have to, when you have already pulled out all your resources but still not enough, a personal loan may be ideal for you. Just make sure though you only borrow what you need and not too much. After all, you do not want to spend the first few years of your married life paying off debts, right?

The list is actually long. There are just too many possible reasons to get a personal loan. As we have said earlier, unlike other types of loans out there, a personal loan can be used for almost if not everything. So, yeah, it’s safe to say that a personal loan is handy. You can borrow or apply for it anytime you badly need cash.

WHERE TO APPLY FOR A PERSONAL LOAN FROM?

So, you know now what is a personal loan. You also know already about the different types of personal loans, as well as who’s eligible, and for what purpose can you apply for such loan type. This time around, we are going to share with you where exactly to apply for a personal loan.

There are actually three different entities where you can apply for a personal loan. These are through:

  • Banks
  • Credit Unions
  • Online Lenders or Creditors

Let’s discuss each further –

Banks

Banks are very accessible. In almost every corner especially if you are living in the downtown area, you will see a bank. Some of these have been around for decades, while others are relatively new in the banking industry.

Nevertheless, they all have one thing in common. They do offer personal loans to their customers.

The thing about traditional banks is that loaning or borrowing money requires the borrower to show up at the branch of the bank. He or she needs to apply for a personal loan in person.

As compared to credit unions and online lenders, banks are stricter when it comes to requirements. They do not easily approve a loan application — unless you qualify.

One major draw of banks, as we have mentioned earlier is the fact that they are all over the place. You can choose from a wide selection of banks in your area.

More so, applying in person allows borrowers to take advantage of benefits like asking help from a credit specialist to recommend the best possible loan offer. At the same time, borrowers may also request to have them go through the whole process.

In addition to that, the delivery process tends to be quicker as well especially if the borrower does have existing savings or checking accounts with the bank already.

Meanwhile, although traditional banking service is the key to applying for a personal loan in banks, with the technological advancement around, most banks have already jumped into offering online loan application as well. Definitely, this makes the process easier and more convenient.

  • Requirements:

Requirements vary from one bank to another. However, most major banking institutions require a fairly minimum credit score of 660 to get approved for a personal loan application. With that said, banks are not ideal for those who have low credit scores.

  • Interest Rate:

Interest rates also vary from bank to bank. Usually, though, banks charge at least 6%, and at most 25%.

Some of the best banks that offer personal loans are:

  • American Express
  • Citibank
  • KeyBank
  • Wells Fargo
  • U.S. Bank
  • Discover Bank
  • TD Bank
  • PNC
  • Fifth Third Bank

Credit Unions

Between the three options on where to get a personal loan from, credit unions are probably the best choice.

First off, a credit union is a not-for-profit organization. It is a member-owned financial cooperative. To be able to get a personal loan, you have to be a member first, and because you are a member of the organization, that means you are part-owner of it.

The thing we like about credit unions is that it provides its members with a variety of financial services, which include credit with competitive rates.

Unlike banks, credit unions are not that popular. They are not as many as banks. That is why when you are opting to loan from a credit union, it is best to check first if you have one in your area.

Just like banks, though, you have to apply for a personal loan in person. Digital application is not a popular practice among credit unions, but who knows, maybe one of these days, they eventually offer it as well.

  • Requirements:

Requirements for a personal loan application vary depending on the credit union. However, one thing is for sure, you have to be a member. Otherwise, you won’t be qualified at all.

With regards to credit score requirements, since credit unions are more community-oriented, they are more likely to approve loans even with people who do not have good credit.

  • Interest Rate:

One of the best things about credit unions is that they offer lower interest rates compared to banks. This becomes possible because of the fact that federal credit unions have an interest rate cap set by a national board. Meanwhile, state credit unions have a cap set by the state government. At most, credit unions charge up to 18% interest rate only.

Some of the best credit unions that offer personal loans are:

  • Affinity Federal Credit Union
  • Aspire Federal Credit Union
  • Georgia’s Own Credit Union
  • Pentagon Federal Credit Union
  • NASA Federal Credit Union

Online Lenders or Creditors

Obviously, online lenders refer to creditors who operate entirely online. This industry has grown over the years perhaps because of convenience, and the fact that online lenders offer competitive rates as well.

One of the major draws of online lenders is that you do not have to wait long for approval. In just a few minutes after an online loan application, a decision is given. Also, funds are provided as soon as approved.

Online lenders are ideal for people who are always on-the-go or those who badly need funds as soon as possible.

  • Requirements:

Online lenders do have their respective sets of requirements. Unlike banks and credit unions though, online creditors lend to people with bad or have no credit at all.

  • Interest Rate:

Compared to banks and credit unions, online lenders tend to have a higher interest rate (depends on your credit). In fact, some online lenders may charge as high as 36%, while some, as low as 6% interest rate.

Some of the best online lenders that offer personal loans are:

  • FreedomPlus
  • Marcus by Goldman Sachs
  • SoFi
  • LendingClub
  • LendingPoint

FINAL THOUGHTS ON WHAT IS A PERSONAL LOAN

Perhaps by this time you have fully understood what a personal loan is all about. As you can see, there are so many things that you need to know before jumping into a decision of getting a personal loan on a financial institution.

As borrowers, we thought it is our responsibility to be fully informed to avoid making uninformed decisions or committing mistakes especially when it comes to money. After all, nobody wants to waste money, right? All the more if it is hard-earned.

So, do you see yourself applying for a personal loan anytime soon?

Just keep in mind all the information we shared about a personal loan. Not just about what is a personal loan, but all the other equally important information that comes with it.