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Personal Loan Basics
27% of adults in the U.S. need to borrow money, get a personal loan, or sell something they own to pay for an unexpected expense of just $400. 12% of adults wouldn’t know where to start in finding help to obtain the money they need. There are a plethora of personal loan companies in the marketplace, but how do you know which one to go to or what makes one personal loan better than another?
You can determine the answers to these questions by learning more about what are personal loans? How do personal loans work, and what is the benefit of you obtaining one? A 2018 U.S. News survey found that people who are seeking a personal loan spend less than two hours researching them before determining which particular loan finance company to go to.
When people experience financial hardships, it’s important to know how they work, and are any of them applicable to their financial situation? Read on to learn more about personal loans and how since 2016, these types of loans have become one of the fastest-growing loan products in the market.
What is a personal loan?
Before attempting to find a personal loan finance company, it helps to start at the beginning and determine what a personal loan is? Personal loans are a secured or an unsecured personal loan with the purpose of helping you reach a financial goal. The financial goals that people get personal loans for range from paying off a high-interest rate debt to home improvement to funding a significant expense item like an unexpected medical expense.
Most personal loans have percentage interest rates that range from 6% to 36%, so finding the one that’s good for obtaining your financial objective and also good for your specific loan purpose is vital. Most of the time, people want to apply for a personal loan that has the lowest annual percentage rate they can qualify for. But there are other personal loan features you need to look at too.
These features include fees, a soft credit check requirement, or minimum loan amount. Also, you should look into whether the lender autopays your creditors directly or give you the money so you can pay them off. You also want to know what the life of the personal loan is and how long you’ll be making monthly payments.
How do I get a personal loan?
The first thing a consumer thinks of when seeking personal loan options is finding one at their local bank. Banks usually have many loan offers for your consideration but only if your credit score is top-notch. Most of the time, if you could meet all the excellent credit profile criteria a bank needs you to in qualifying for a personal loan, you wouldn’t need one as you’d already have financial security.
The good news is banks aren’t the only places that offer personal loans. You can get this kind of loan at a credit union, consumer finance companies, online lenders, and even peer-to-peer lenders. An important criterion you want your loan lender to offer is terms and conditions for personal loans, mortgage refinancing, or any other type of consumer loan. You also want to know ahead of time the length of time you’ll be making monthly payments and the fixed interest rate so you can assess if all the costs will fit into your budget.
You can find some of these lenders by going online and looking for personal loan lenders that lead you to company websites. These company websites share information that lets you know their rates, terms, fees, and more. You can read online reviews about the companies to find out what previous customers are stating, as well as their rating with the Better Business Bureau.
Also, you should check out the company through the Consumer Financial Protection Bureau (CFPB) because they are a U.S. government agency that helps protect the rights of consumers through a searchable database of lending companies.
How do personal loans work?
The easiest way to think about a personal loan is that the application process is for an installment loan that allows you to borrow a fixed amount of money and pay it back in monthly payments over the life of the loan. The time range for most monthly payments and loan terms runs from twelve to eighty-four months. After you pay your loan off, if you need another one, you can apply for a new loan.
But the loans come with other costs such as origination fees, processing fees, prepayment penalties, and late fees. It’s essential to know before you select a lender to borrow from which of these types of fees do they use. If the lender uses an origination fee, you’ll have to pay for the processing of your online application, or loan application which usually ranges from the lowest rate of 1% to 8%.
Sometimes there are processing fees that are assessed with your loan and are added to the loan amount you pay back each month. If you find a way to pay back your loan before the loan is due, you can have to pay the lender a prepayment fee. Late-payment fees can be assessed against you if you are late in paying the loan terms back, so try to always pay back your loan on time.
Which banks offer personal loans?
There are some large personal loans you can get from banks as long as you have an account and excellent credit history. Most banks will consider you for a personal loan if you’re an existing customer and have creditworthiness. Some of the banks that have good repayment terms for loan payments and are worth checking out.
They include but aren’t limited to:
- PNC Bank Personal Loan
- HSBC Personal Loan
- Wells Fargo Personal Loan
- Citizens Bank
- BB&T Bank Personal Loan, and
- US Bank Premier Loan
The actual rate you receive on your loan will depend a lot on your annual income and credit report because if you have good credit, then you will have a lower interest rate.
What are reasons to get a personal loan?
Personal loans today are considered a very diversified financial offering, allow more people to get access to them. Everyone has a story about the first time they got a personal loan outside of a financial institution they got an auto loan or jewelry. The reasons for getting a personal loan are as wide as they are deep.
Some of the most common reasons to get a loan are to help you remodel your home by adding something to your house like a pool, a new roof, or build an extra room. Many times people get a loan to help their FICO credit score. It’s more common than you think to do this because if you can get a personal loan and pay it off in time, the credit bureaus calculate that into your credit report score.
Parents sometimes get a loan to help pay for a wedding for their child, or the bride and the groom get a loan to help pay for their wedding themselves. The average wedding today is over $32,000, so a personal loan solves a lot of wedding financial issues. There are countless personal loans to help you pay off your credit card debt.
Credit card debt, with its staggering high-interest rates, is often paid off by these types of loans because most personal debt consolidation loans have lower interest rates and can help a person with bad credit. There are even cases where people start their business through a personal loan because it helps them access start-up money that’s needed to begin their entrepreneurship dream.
Can you refinance a personal loan?
You can refinance a personal loan, but you have to ask yourself if it’s a good idea. You could be digging yourself a bigger debt hole, and that’s not what a personal loan is for. But you can check if you pre-qualify through multiple lenders to see what their interest rates are and compare them to what you have now.
Once you find a lender with interest rates a bit better than what you have now, you want to find out what the refinancing costs will be. Remember, you can have fees, prepayment penalties, and more when you’re refinancing a personal loan. Also, some people want to transfer the money themselves to pay off a current loan, but many lenders do it for you by transferring the funds to the existing loan and paying it off.
Make sure you’re comfortable with your new lender’s loan application process, fees, and details before you sign on for a new loan.
What’s Your Next Step?
You can proceed with caution now that you know what is a personal loan and what is the application process? You also now know how personal loans work, their benefits, and how things such as a credit report can affect the interest rate and fees that impact your monthly payment. If you’re looking for a company that’s a one-stop destination that can help save you time and money in your search for personal loans, look no further than LowerMyBills.
Connect with a personal loan lender to learn more about their specific financial benefits so you can save time and enjoy what a personal loan can bring to your life.