Personal loans 101: How to get the money you need

how to get a personal loanWith credit card interest rates soaring as high as 30%, people continue to look for alternatives to credit cards, especially when an emergency comes up. Personal loans can be a good option, but only if you have a good credit score; otherwise, the rates can be even higher than credit cards.

Just what can you use a personal loan for? Essentially any cash needed, including credit card payoff, debt consolidation, education, training, home improvement, car financing, business needs, vacation expenses, major purchases, wedding expenses, moving costs and medical expenses.

But be careful out there: If you're not absolutely sure about what you're getting yourself into, personal loans can cost you big time. Interest rates, especially from places like the ones that offer payday loans, can be as high as 300%, so be certain you understand the terms before you sign on the dotted line.

Loan basics

There are essentially two types of personal loans: secured and unsecured. Secured loans generally offer lower interest rates than unsecured loans, but you must put up something for collateral, such as your house, your car or your boat. If you don't pay off the loan, you can lose that collateral, so tread carefully if you're asked to secure the loan.

Unsecured loans are commonly known as "signature" loans. Essentially, the bank or other institution will loan you the money with just your signature. You can probably get more money and a lower interest rate with a secured loan, but do you really want to put an asset at risk? That's one of the key questions you need to ask yourself before applying for a personal loan.

The next thing to determine is just where you're going to get a loan. Banks and credit unions offer loans, and those should be your first stop. You can start by calling your own bank and finding out their personal loan terms. That way you know what the ballpark is for personal loans.

Also, if a you have good, long-term relationship with your bank, they know you as a customer and should be more willing to consider a "signature" loan. Just to be sure you're getting the best rate, call other banks and credit unions in your area. Since the market for personal loans is very broad, you definitely need to shop around to be sure you're getting the best offer.

One word of advice: When you start checking on rates, don't put in an application until you've made your choice of lender. Although your lender will likely tell you it can't give you a rate until after you formally apply, you should try asking for a range of interest rates. You also should ask what credit score the bank or credit union requires to get the best rates.

But why shouldn't you just apply to see what kind of rate you'd get? For a very good reason: When you apply to a bank, credit union or other lender, the lender will check your credit score. Every time your score gets checked, the inquiry could result in a lower FICO credit score, which means that every time you apply for a loan, the next bank will discover a lower credit score for you than the one before, and so on and so on and so on. And the lower your score, the worse the rates are that you'll be offered.

After getting an idea of the type of rates you'd get from a bank or credit union, your next step should be to check out one of the peer-to-peer lending websites, such as Lending Club or Prosper. You may find you can get your best interest rate offer from one of these sites. Essentially, by going with one of these sites, you're cutting out the bank and borrowing from peers -- investors will put up the cash that you borrow.

At both the Lending Club and Propser, you can borrow up to $25,000 for personal loans, business loans or student loans -- pretty typical for the industry -- but you still need a pretty good credit score. With Lending Club, for instance, your credit score must be 660 or above, and with Prosper, you must have a credit score of 640 or above. As with banks and credit unions, the interest rate you'll be quoted will be based on your credit score; the better your score, the lower the interest rate.

What kind of rate can you expect? At Lending Club, interest rates run between 7.93% and 25.07%. Prosper offers loans from 7.5% to 35%. Both websites require payback in full in three years. You'll also need to pay an origination fee. For the Lending Club, that's 2.25% to 4.5% of the total amount of the loan. Prosper charges between 0.5% and 3%.

Not sure what your credit score is? You can get it for free at CreditKarma.com. If your score isn't at least 640 or above, you'll likely find it very difficult to get a personal loan at a decent rate. If you find your credit score is lower than that, take the time to order a free copy of your credit reports at annualcreditreport.com and see whether there are any errors on your credit report that could be affecting your score. If you find errors, correct them as soon as possible (my book, "The Complete Idiot's Guide to Improving Your Credit Score," offers extensive ideas on how to clean up your credit report and improve your score).

Once you've corrected any errors on your credit report, check your credit score again. A higher score could just get you the loan you need to pay off your debts and get you back on track to financial fitness.

Lita Epstein has written more than 25 books including "The Complete Idiot's Guide to Improving Your Credit Score" and "The Complete Idiot's Guide to Personal Bankruptcy."

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Andy James

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Monday at 11:01 PM Report abuse rate up rate down Reply
illuminati_ocultic

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December 10 2014 at 2:35 AM Report abuse rate up rate down Reply
Richy Walters

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December 04 2014 at 7:59 PM Report abuse rate up rate down Reply
Mario Elizabeth Nico

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December 03 2014 at 5:39 PM Report abuse rate up rate down Reply
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December 03 2014 at 1:02 AM Report abuse rate up rate down Reply
Gre Illu

Hello,

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December 03 2014 at 12:52 AM Report abuse rate up rate down Reply
ponder.walt

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December 02 2014 at 11:32 AM Report abuse rate up rate down Reply
Lauren Travis

TESTIMONY ON HOW I GOT MY CHRISTMAS LOAN FROM A GENUINE LOAN COMPANY LAST WEEK

I am MRS LAUREN TRAVIS by name, I live in California, United State Of America, who have been a scam victim to so many fake lenders online between February last year till April this year but i thank my creator so much that he has finally smiled on me by directing me to this new lender who put a smile on my face by not scamming me and also by not deceiving or lying to me but however this lender whose name is Mr Alvaro Amaranto gave me a Christmas loan which amount is $ 90,000 united states dollars after my agreement to their company terms and conditions and one significant thing i love about this loan company is its fast service and also its God fearing attitude for not been like other fake lenders online who scammed me before now by asking me to bring fees upon fees without getting the results of all those fees payment that i made to them but all the same , i still give glory to God that my storm is over now and i am now that busy woman that i used to be and also my business is now growing here in my country because i now have much capital to do my business properly before the year runs out without having to go and meet my bank for any assistant . Thank you Alvaro loan company for this dream come through and i promise to try all my best to refer your loan company to others who are in need currently just as the way i once was .. thanks so much over and over a again and may God guide you all . here is there email to contact them if you need loan too ..
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Thank you all for we are pencil in the hand of God
Regard.
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December 01 2014 at 12:32 AM Report abuse rate up rate down Reply
Lauren Travis

TESTIMONY ON HOW I GOT MY CHRISTMAS LOAN FROM A GENUINE LOAN COMPANY LAST WEEK.

I’m Mrs LAUREN TRAVIS by name. I live in USA, i want to use this medium to alert all loan seekers to be very careful because there are scammers everywhere.Few months ago I was financially strained, and due to my desperation I was scammed by several online lenders. I had almost lost hope until a friend of mine referred me to a very reliable lender called Mr Alvaro amaranto who lend me an unsecured loan of $90,000 under 7hours last week without any stress. If you are in need of any kind of loan just contact him via Email:Alvaroloancompany@yahoo.com.
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Mrs Lauren Travis
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November 26 2014 at 4:42 AM Report abuse rate up rate down Reply
Lisa Jay

HERE IS MY TESTIMONY ON HOW I GOT MY LOAN

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November 26 2014 at 1:24 AM Report abuse rate up rate down Reply