Personal loan

Published by vicky on

Although your credit score and other information gathered on your loan application will allow the lender to determine if you qualify for a personal loan, anyone can be a potential personal loan borrower.

“There are many places to get a personal loan, everywhere from an established banking foundation to the hard money lender who you might run into down at the local watering hole,” says Ryan Boggs, a wealth manager at FourStar Wealth Advisors LLC, in Chicago. “That said, the best and most advisable are financial organizations that specialize in personal loans.”

Aside from traditional banks and credit unions, that “specialist” group includes SoFi, Lending Tree, LightStream, Lending Club, Credible, and Marcus (from Goldman Sachs), Boggs notes.

Other good options to get a personal loan include Prosper, BestEgg, LendingPoint, UpStart and Laurel Road and Upgrade. “Discover and Wells Fargo are two of the more popular banks for personal loans right now,” says J.R. Duren, a personal finance analyst at

Independent, online lenders can be especially helpful for borrowers for whom credit scores do not reflect repayment capabilities.

“With tightened lending requirements of many banks and credit unions, it can be hard for some consumers to obtain traditional loans,” notes Joe Toms, president of FreedomPlus, a personal loan provider based in San Francisco, Calif. “These lenders use different criteria than a traditional bank or credit union to evaluate how likely a person is to repay a loan.”

Some lenders will allow the consumer to provide information and context about their credit scores and profiles, savings and other factors that indicate they are financially responsible.

Evaluating Personal Loan Providers

It’s vital to find a personal loan lender that is right for you and your situation. To determine the right lender for you, use the following checklist.

1. Is the Lender Is Honest with You?

A personal loan lender should take the time to help figure out if a personal loan is a good move for you. “Sometimes, a personal loan is not the answer,” Toms says. “A good lender will help determine that and will be able to make a recommendation in the best interest of the borrower.”

For instance, if the borrower is struggling to make minimum payments on current debt, a personal loan may not be the best solution. A good lender will recognize that and may suggest the consumer look into other options, such as debt negotiation or debt consolidation.

2. Does the Lender Prioritize Communications?

“Some lenders only provide the online capability, with no human interaction,” Toms states. “Most potential borrowers benefit by working with a lender that has loan consultants who will work with them to determine the best terms and rates, and discuss all options fully.”

3. Are Fees and Interest Rates Fair?

Personal loans typically charge an origination fee of 1% to 5% of the loan amount. Average rates on personal loans can vary widely, from just over 4% annually (for people with exceptional credit) to 25% for people with poor credit.

4. Are Discounts Available?

“Some personal loan providers may offer a discounted rate if there is a co-borrower with sufficient income, or if the applicant has a certain level of retirement savings,” Toms notes.

Where to Start Your Personal Loan Search

Perhaps the best place to start your personal loan campaign is with your existing bank or credit union, given the fact that you already have a relationship with that financial institution.

“Use that relationship to better qualify for a discounted interest rate,” says Ryan Skidmore, a loan specialist at Lift Credit, an online loan specialist firm. “There are also many online lenders who offer personal and installment loans. Make sure to do your research if you choose to go with an online lending company by looking at reviews and background information.”

No matter where you go for a personal loan, completing a personal loan application is typically done online.

“After you submit your loan application, your credit score, annual income, and debt-to-income ratio will be reviewed,” says Skidmore. “Lenders may ask additional questions about your current employer and ask how long you’ve worked for them. The lender will then notify and contact you about whether your loan application is approved or not.”

Be Prepared Before Applying for a Personal Loan

The best strategies to get approved for a personal loan include the following items:

  • A solid and established income/salary. W-2 salaries are considered more stable than 1099s.
  • Good credit (sometimes you can attain the loan with fair credit, but things like bankruptcy, too high a debt-to-income ratio, or too many late payments can reduce loan availability or increase interest rates because lenders think of you as riskier).
  • Two years of filed tax returns are helpful to get the biggest loan at the best/lowest rate (i.e. best terms).

“If you’re self-employed or a 1099 (contractor), it is advisable to apply for the loan after you have two sequential paychecks that might also have a bonus in them to show that for the month, your annual income is large, as well as good to have seasoned monies in a checking account,” says Boggs, referring to monies that have been in the account for at least 60 to 90 days.

The credit issue is huge when you’re preparing to search for a personal loan. Don’t proceed on a personal loan search without checking your credit first, as a low credit score could immediately disqualify you for a personal loan. Make sure you check your credit reports and credit scores before applying.

“The big roadblock you’re going to face isn’t so much something that’s going to disqualify as it is going to cost you—credit history,” says Duren. “Even if you’re approved for the loan, If you’ve got payments of more than 30 days late in the past year, there’s a good chance the lender is going to give you their highest rate or something close to their highest rate.”

The Takeaway on Personal Loans

Finding a good personal loan provider isn’t all that difficult, if you’re prepared, do your due diligence, and expand your search to include both traditional financial institutions and digital loan providers.

Just know going in that no matter which lender you choose for a personal loan, the best way to maximize the personal loan experience is to work with a loan provider who meets your unique financial needs.

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