Personal loans are the fastest-growing debt category worldwide, particularly in the United States of America. Due to the improvement in technology and innovation like fintech, cryptocurrency, and blockchain, these loans are easy to access and affordable.
Through personal loans, people can borrow a lump-sum amount for various uses and pay it back in monthly installments over a set period. This debt is mainly considered an alternative to cheap credit cards due to the lower interest rate.
People use personal loans on various occasions ranging from house improvements and paying for expenses incurred on vacation abroad to emergency expenses like medical bills. Even though personal loans are cheap, they cannot be categorized as free money.
People get personal loan rates that vary from one creditor to another. The personal loan rate depends on several critical factors like the person’s credit score and so on. Generally, the best personal loan rates range from 3%, the minimum, to 36%, the maximum APR a loan provider asks for.
Some loan providers put a restriction on where the borrower can use the money, and if the borrower uses it for something that their creditor does not permit, they will have to pay the penalty, and the loan may also be taken away from them.
Since personal loans are designed to help people who have met an unforeseen situation and need an influx of cash, such loans come with conditions like the dos and don’ts of spending the loan. Moreover, people sign an agreement under which they have to pay back the amount every month in installments to the loan provider.
A personal loan will not impact an individual’s credit score if all the installments are paid back in time. If the borrowers delay on their dues, the loan provider is within the right to report it to the major credit bureaus. Most creditors report to the credit bureaus when the loan is paid back on time to help the person improve their credit rating for better rates in the future.
In this article, we will cover the basics of personal loans. We will discuss the operational mechanism of personal loans. The guide will include the various types of personal loans a person can apply for. We will also list down the pros and cons of personal loans. The article will also cover the best personal loan offered in the industry. A FAQs section will be added to answer general questions about personal loans.
What Is a Personal Loan?
Personal loans are a type of installment loan comprising shorter repayment terms and fixed interest rates. These loans can be used for several purposes, but the borrower will have to check with their loan provider where they are not allowed to use the loan. Some common areas where the loan is used include debt consolidation, home renovations, financing a large purchase like a house, or paying for medical bills.
Different banks, credit unions, and online lenders are providing the facility of personal loans to people in need of it in the industry. Personal loans are very different from credit cards or lines of credit mainly due to the lower interest rate tag it carries.
Personal loans are unsecured loans that depend on the person’s credit rating and o not require any collateral for approval. Creditors can keep collateral if the person defaults on a loan and does not pay back the amount they owe to the bank. For a loan provider, collateral is considered an asset such as a house or car.
How Do Personal Loans Work?
People can afford the significant finances that come their way through personal loans. Some people get personal loans to cover the wedding expense of their child even. But people have different responsibilities, so using a personal loan may vary from person to person. However, these personal loans cannot be used to pay for a child’s educational expenses.
The first thing people should do before applying for a personal loan is making a Performa of how they will utilize the money and pay it back within the due date. The process begins once a person knows the personal loan amount they need and the time it will take to repay the dues. So, people need to make a budget of their spending in which they list down the first installment, the second installment, and so on they need to pay back to the loan provider.
The loan terms that creditors offer range between the times of six months up to seven years. The longer the loan term, the lower the monthly installment amount a borrower would need to repay. However, the long-term loan periods come with a higher interest rate, and people end up paying a lot more than they borrowed. So it is better to go with the short-term loan periods.
After the personal loan is approved, the cash will be deposited in the borrower’s checking account. The extra money left will be sent to the borrower’s bank account. In the case of a debt consolidation loan, the lender can pay directly in the credit card account to avoid the hassle.
The individual must pay an installment bill monthly, including the principal amount plus the interest charges. The lender charges a penalty since they lose precious interest linked with the principal loan amount. The individual can start paying back the amount generally after a month they received it. If the borrower is stable financially and wishes to pay the loan back earlier, they should check with their loan providers, who may charge a prepayment penalty.
After the personal loan has been repaid in full by the borrower, the credit line will then close, and the borrower will not have any access to it. The loan provider will update the credit bureaus about this development to impact the person’s credit score positively.
How to Apply for a Personal Loan?
This section will show how a person can apply for a personal loan. Let’s get to it then!
The following are the steps a prospective borrower will need to follow to apply for a personal loan.
Get Preapproved Rates
The first step would be contacting various lenders and requesting rates for their loans. One thing to note here is that the person needs to ensure that the lender carries a soft inquiry on their financial background so that it does not adversely impact their credit score.
When a person requests rate quotes from the lender, they must provide personal information on the lender’s website. This may include their full name, address, social security number, and proof of income. The person would need to mention the loan amount they seek, the reason for borrowing, and the loan repayment period they would like to go with.
After providing all this information on the lender’s website, the prospective borrower will be informed on how to apply for the loan formally.
Compare Offers
In this step, the prospective borrower will have to research, compare the offers they have received from various lenders, and evaluate which offers to suit them the most.
Choose Your Top One or Two Lenders
The final step is to formally complete the application and list down a minimum of one or a maximum of two lenders you would like to reach out to for a personal loan. The lenders will let you know if you qualify for the loan, the interest you need to pay, and the loan period. Here, your financial records will undergo a hard inquiry, leaving a mark and reporting to the credit bureaus.
Different Types of Personal Loans
In the previous section, we discussed the fundamentals of personal loans. Here, we will include the various types of personal loans and their uses that people opt for by borrowing from banks, credit unions, and online lenders. Let’s get started!
Personal loans come in a few common categories, which include the following:
Debt Consolidation
With a debt consolidation loan, a person can pay back the dues they owe to the lender within the due date to prevent from getting default. After that, the person can work to pay off the personal loans through installments every month that consist of the principal payment plus interest charges.
People with a high-interest rate debt find this option most ideal as it pays off a lump sum loan—usually, this amount results when an individual does not pay their credit card bill on time. Hence, the accumulated amount must be paid back with a greater interest rate.
If the debt costs less than the alternative option, people should go for this. Financial experts advise that if people can get better interest rates, they should not go for debt consolidation. Individuals should ensure that the loan does not have any hidden charges or fees, which would increase the overall cost of the loan.
People should do their due diligence by figuring out the debts they need to consolidate and evaluate the total cost they would save from the interest rates. Upon doing that, people would have a figure in mind, and then they can reach out to different creditors and get quotes about debt consolidation.
Emergency Expenses
Through emergency expenses loans, individuals can cover up the bill they did not expect to arrive, which sets off their monthly budget. A personal loan to cover emergency expenses like car repair, hospital bills, and more will help a person free from financial burden.
If a person applies for a loan, it will cost them a lot due to the interest rates connected with the loan. So the best option would be to not go for the loan unless you don’t have any other opportunity. People with no payment plan to cover the emergency expenses without incurring a higher interest on their credit card are most suited to apply for a personal loan under this category.
The ideal option is to always look for loan alternatives. It is better to look for loans with a low APR value and select a specific amount of loan you need. Taking out a loan with a higher amount and not needing it will add to your financial troubles.
Financial experts advise people to do their homework before they reach out to lenders. Choose those lenders that will most likely approve your loan. The ideal scenario is to choose the specific lenders that can grant the loan amount soon after its approval so that the individual can pay for their expenses.
Home Renovations
Personal loans are ideal for individuals to get an influx of cash to pay for the expenses incurred. People tend to have home improvements every few years for which they need funds. As a result, borrowers can pay back that amount with interest in monthly installments.
This scenario is perfect for those who would like to boost their home equity by increasing their home’s value. This way, such people will not face financial hardships and can change their homes as they see fit.
People should look out for loans with a high APR as they are unattractive and negatively impact their financial stability. Hence, it is better to list down all the loan providers and the benefits they are providing along with their APR. Next, through the process of elimination, individuals can make a sensible decision.
The initial step to getting a loan is hiring a contractor to evaluate the changes needed and the cost incurred to introduce such changes. After that, prospective borrowers should approach the lenders and get quotes to draw a comparison on the one that suits them the most.
Major Purchases or Events
Several significant events and purchases take place in the life of an individual. These may include a wedding, a vacation, etc. All such events will incur expenses that can be paid off if a person has an excellent financial standing and can afford such luxuries.
People have mixed views when they wish to get a personal loan to pay for such purchases. Some believe that it is not ideal for getting a loan for something that will only last a few days and that saving money would be more fruitful. So those people who will incur an expense on such a large scale are better off getting a personal loan.
Others believe that getting a personal loan with a lower APR can help alleviate the financial burden. Hence, such people should get the loan by the deadlines when the major purchase is going to be held, or events will take place.
Prospective borrowers have an option to reach out to different lenders to get the best rates for a significant purchase or event. Choose the option which has the lowest APR linked to the loan.
Benefits and Drawbacks of Personal Loans
This section will discuss the benefits and drawbacks of getting personal loans. Let’s dive into it!
Pros of Personal Loans
The pros include the following:
One Lump Sum
Through personal loans, borrowers can get one lump sum payment with a fixed interest rate which will keep their finances on track. As a result, their budget will not be offset, and they can still carry on with everyday expenses without any financial burden.
Get Money Quickly
One of the reasons for getting personal loans is that the money is readily available and can be transferred to the borrower’s checking account on the same day. The perk of this is seen when the borrower can use that money for the reason they applied for the loan. For some people, it would be to pay off debts; for others, it would be to cover their medical bills. Nevertheless, having access to an influx of cash is always rewarding.
Unsecured Loans
Since personal loans are unsecured loans, then this means that the person would not need to keep something as collateral. Prospective borrowers will be evaluated based on their creditworthiness, meaning they should have a stable credit score.
Low-Interest Rates
Personal loans are known for their lower interest, making them attractive for a person who requires urgent liquidity. Comparing personal with credit cards will show the big difference in interest rates. While the interest rate for credit cards can increase to 400%, it starts at 3% and can go as high as 36% for personal loans.
Flexible Schedule to Payoff
Although personal loans come with monthly installments, people can still choose to pay every month and increase the loan period. Hence, people get reasonable time to repay the loan they borrowed from the creditor.
Cons of Personal Loans
The Cons include the following:
APRs Are Generally Higher
The APRs of personal loans are generally higher than other secured loans, showing prospective borrowers have alternatives they can go with. A more excellent APR means borrowers must pay greater interest on the principal loan amount.
Low Credit Score
People with a low credit rating below the average score on the FICO scoring model will not be approved for personal loans by the lender. This also means that a poor credit score will get rejected because of bad creditworthiness.
Charge Fees
Upon accepting personal loans, lenders charge various fees like origination, processing, etc. The lenders also charge other types of fees which increase the monthly installment amount. These may include late and prepayment fees. The lender will charge several fees if a borrower has a low credit score.
Co-signers Not Allowed
Several lenders do not allow the use of co-signers when applying for a personal loan. This would mean that the applicant’s credit score will be considered to determine their creditworthiness. And there is a high probability that the applications will get rejected with a low credit score.
Best Personal Loans
In this section, we will discuss the best personal loans that are offered in the industry. Each of these loans is considered, so people can apply for them after carrying out due diligence. Let’s dive into it!
SoFi
SoFi is an online loan provider that offers personal loans in all U.S states but not Mississippi. SoFi is the best personal loan provider started in 2011, providing the users with up to $100,000 loan amount for 2 to 7 years. SoFi offers flexible repayment options for users with a credit score of 650 and an annual income of about $45,000.
All available offers, including loan amounts, terms, and multiple fee charges provided by SoFi, vary from lender to lender and state. Users can use SoFi personal loans only for family, household, and personal usage. The funding time of SoFi requires having some days, especially if the loan amount is more than $20,000.
Features of SoFi include the following:
- APR range: 6.99% to 22.23%
- Minimum Credit score: 650
- Loan amount: $5,000 to $100,000
- Minimum Annual Income: $30,000
- Loan Term: 2 to 7 years
- Origination fee: None
- Late Payment fee: None
- Early Payoff fee: None
Pros are as follows:
- It offers no fees for sign-up, early payoff, or late payment.
- It protects unemployment if anyone loses his job.
- It enables applicants to have more than one SoFi loan at a time.
- It provides co-applicants the chance to apply for a personal loan.
- It allows applicants to have a personal loan with income proof if they start a new job.
Cons are as follows:
- Applicants with a U.S visa cannot apply for SoFi personal loan if they don’t have two years remaining visa.
- It allows co-applicants only; Co-signers are not allowed.
LightStream
LightStream lending platform works under the Trust and SunTrust Bank. LightStream is the best option for low-interest personal loans without any fees for origination, late payment, and early payoff. LightStream offers users the best flexible loan terms of 2 to 7 years for loans ranging from $5,000 to $100,000.
Users with the auto-pay program can avail of a 0.50% discount and the Rate-beat program. LightStream provides its coverage to 50 U.S states, including Puerto Rico and Washington. Its customer support team offers its service for seven days.
Features of LightStream include the following:
- APR range: 3.99% to 19.99%
- Minimum Credit score: 660
- Loan amount: $5,000 to $100,000
- Minimum Annual Income: $50,000
- Loan Term: 2 to 7 years
- Origination fee: None
- Late Payment fee: None
- Early Payoff fee: None
Pros are as follows:
- It offers high loan amounts of more than $100,000.
- With ACH or wire transfer, users can avail the same funding offer.
- It offers no fees for origination, payoff, and late payment.
- It offers great rewards and bonuses with every loan, which helps a lot.
Cons are as follows:
- Users need to have a credit history of some years.
- There is no option of paying the loan amount to creditors directly.
- It offers no student loans and no business loans.
- It does not offer any pre-approval option on its website.
Marcus
Marcus is a lending platform that works under Goldman Sachs. It offers loan amounts ranging from $3,500 to $40,000 with flexible loan terms of 3 to 6 years. Users with autopay can avail 0.25% discount with an APR range of 6.74% to 19.74%. With Marcus, users are not required to pay any fee, including the origination fee, late payment, or an early payoff penalty.
Marcus provides users the availability of keeping an eye on the loan options by using soft credit pull. Its customer support service is available online for seven days from 9 am to 7 pm. Marcus does not offer its service via a mobile application, so users have difficulty contacting the lender physically.
Features of Marcus include the following:
- APR range: 6.74% to 19.74%
- Minimum Credit score: N/A
- Loan amount: $3,500 to $40,000
- Minimum Annual Income: $35,000
- Loan Term: 3 years to 6 years
- Origination fee: None
- Late Payment fee: None
- Early Payoff fee: None
Pros are as follows:
- It charges no fees for origination, payoff, and late payment.
- For debt consolidation, users can directly pay more than ten creditors.
- It provides updates for monthly VantageScore.
- Users could enjoy a one-month interest-free off payment if they paid 12 on-time payments.
- It offers users to choose the due date for their loan payment.
Cons are as follows:
- It offers no loan to both co-signers and co-applicants.
- It is not a fast funding personal loan; it will take a minimum of 7 and a maximum of 10 days for the process.
- It requires users to go through a tough approval method if they apply for a low-interest personal loan or larger loan.
Lending Point
Lending Point is an online lending platform started in Atlanta offering users loan amounts of $2,000 to $36,500 for the flexible loan terms ranging from 2 years to 5 years. Lending Point offers users no fees for late payment and prepayment penalties, but it does charge an origination fee of 0% to 6%.
Lending Point provides its coverage in 48 U.S states, including Washington D.C, except for West Virginia and Nevada. Its funding speed is fast, providing the user funds within 2 to 3 days. Users must have a high APR range of 7.99% to 35.99% to qualify for Lending Point Personal loans.
Features of Lending Point include the following:
- APR range: 7.99% to 35.99%
- Minimum Credit score: 600
- Loan amount: $2,000 to $36,500
- Minimum Annual income:
- Loan Term: 24 to 60 months
- Origination fee: 0% to 6%
- Late Payment fee: None
- Early Payoff fee: None
Pros are as follows:
- The funding process is fast.
- It does not charge any fee for early payoff.
- Users with low credit scores can apply for a personal loan.
Cons are as follows:
- Its origination fees range from 0% to 6%.
- It does not allow loans for co-signers and co-applicants.
- It is available in all states except for West Virginia and Nevada.
Upgrade
The Upgrade lending platform is the best choice for users with bad credit. It was started in 2017, offering personal loans with a loan amount of $1,000 to $35,000 for 3 to 5 years. Its coverage service is available via online and mobile applications in all U.S states, excluding West Virginia, Vermont, and Lowa.
Users with a low credit score of 560 can avail of personal loans with Upgrade. It offers no early payment penalty, but it charges an origination fee of 2.9% to 8% and a $10 fee for late payment after 15 days of the due date. Lenders of the Upgrade are more concerned with the applicant’s income status and require users to have a 45% income-to-debt ratio.
Features of Upgrade include the following:
- APR range: 5.94% to 35.97%
- Minimum Credit score: 560
- Loan amount: $1,000 to $35,000
- Minimum Annual Income: $0
- Loan Term: 3 to 5 years
- Origination fee: 2.9% to 8%
- Late Payment fee: $10 after 15 days of the due date.
- Early Payoff fee: None
Pros are as follows:
- It offers loans to co-borrowers.
- The loan amount ranges from $1,000 to $50,000.
- It offers the availability of paying directly to creditors for debt consolidation.
Cons are as follows:
- It does not provide information about the required credit score and minimum income.
- It charges a 2.9-8 % origination fee.
- Users need to have a 75% debt-to-income ratio.
Universal Credit
Based on multiple loan offers, Universal Credit is the best personal loan provider. It offers loan amounts ranging from $1,000 to $50,000 with a repayment time of 3 to 5 years. It offers no early payment penalty and late payment fee but charges an origination fee of 4.25% to 8%.
Users must have a high APR of 8.93% to 35.93% to qualify for a Universal Credit Personal loan. Universal Credit requires users to have a minimum credit score of 560. The fund process timing depends on the bank’s transaction time, but Universal Credit offers a fast funding service of one business day.
Features of Universal Credit include the following:
- APR range: 8.93% to 35.93%
- Minimum Credit score: 560
- Loan amount: $1,000 to $50,000
- Minimum Annual Income: $0
- Loan Term: 3 to 5 years
- Origination fee: 4.25% to 8%
- Late Payment fee: None
- Early Payoff fee:
Pros are as follows:
- It offers flexible requirements to qualify for a personal loan.
- It offers the option of next-day funding.
- It does not charge any early payoff fees.
Cons are as follows:
- It requires users to have high APRs.
- It charges origination fees ranging from 4.25% to 8%.
Discover
Discover provides services such as retirement solutions, personal loans, and customer credit cards, along with its banking services. They include mobile banking tools, the best customer support team, and an online application. Discover provides its coverage in all 50 U.S states and is considered one of the best personal loan providers for some reasons.
It offers loan amounts of $2,500 to $35,000 for a flexible loan term of 6 months to 7 years. It charges no origination fee and early-payment penalties but takes a late payment fee of $39. Users can use their loans for auto repairs, medical bills, pet emergencies, and adoption costs.
Features of Discover include the following:
- APR range: 5.99% to 24.99%
- Minimum Credit score: 660
- Loan amount: $2,500 to $35,000
- Minimum Annual Income: $0
- Loan Term: 6 months to 7 years
- Origination fee: None
- Late Payment fee: $39
- Early Payoff fee: None
Pros are as follows:
- It charges no fees for origination and early payoff.
- It offers the availability of directly paying creditors.
- It offers seven different options for payment, including payment via phone or application.
Cons are as follows:
- It charges a $39 fee for late payment.
- It offers no discount for autopay.
- It does not offer loans to co-applicants and co-signers.
Upstart
Upstart stands out from other personal loan providers’ advanced machine learning approach for qualifying borrowers. It offers loan amounts of $1,000 to $50,000 for flexible loan terms ranging from 3 to 5 years. Applicants must have an APR of 5.4% to 35.99% with a minimum annual income of $12,000.
Upstart provides its service in all U.S states except for Lowa and West Virginia. The essential things for Upstart to consider for approval are residence and income proof, job history, debt-to-income ratio, and bankruptcies.
Features of Upstart include the following:
- APR range: 5.4% to 35.99%
- Minimum Credit score: 600
- Loan amount: $1,000 to $50,000
- Minimum Annual Income: $12,000
- Loan Term: 3 to 5 years
- Origination fee:
- Late Payment fee:
- Early Payoff fee:
Pros are as follows:
- It does not require any minimum limit of credit score.
- It provides users the option of changing the due dates of payment.
- The loan amount ranges from $1,000 to $50,000.
Cons are as follows:
- It does not offer any co-applicants option.
- It charges fees for copying the documents.
- It does not provide proper requirements for eligibility criteria.
Avant
Avant is a loan provider that works via a third-party bank and provides secured and unsecured personal loans. It offers loan amounts of $2,000 to $35,000 with a minimum credit score of 550. Applicants with APR of 9.95% and 35.99% can apply for Avant personal loan. Avant provides its coverage in all U.S states except New York, Hawaii, Vermont, Maine, and West Virginia.
Users can pay their loans within loan terms of 2 to 5 years. Avant is an excellent choice for users with low credit scores and provides flexible bonus offers with autopay. Avant personal loans can be used for medical expenses, home improvements, business expenses, travel, and vacation.
Features of Avant include the following:
- APR range: 9.95% to 35.99%
- Minimum Credit score: 550
- Loan amount: $2,000 to $35,000
- Minimum Annual Income: $14,00
- Loan Term: 2 to 5 years
- Origination fee:
- Late Payment fee:
- Early Payoff fee:
Pros are as follows:
- It provides long-term loans.
- Users can use the income of other family members to qualify for the loan.
- It offers a minimum credit score of 580.
Cons are as follows:
- Users have to reach the APR of 9.95%.
- It does not allow co-signers and co-applicants.
- It requires users to have a maximum of 70% debt-to-income.
Best Egg
Best Egg is a great option for users with low-interest rates who want to pay for consolidated debt amounts. It offers loan amounts of $2,000 to $50,000 for a repayment time of 3 to5 years. Best Egg offers users with good credit of 660 to avail of personal loans with a bonus under autopay.
Its funding speed is fast; users can have funds after processing within a business day. Best Egg charges all fees, including an origination fee that is 0.99%, an early payment penalty of $15, and a $15 late payment fee. Moreover, users must have a 40 to 65% of debt-to-income ratio.
Features of Best Egg include the following:
- APR range: 5.99% to 35.99%
- Minimum Credit score: 660
- Loan amount: $2,000 to $50,000
- Minimum Annual Income: $0
- Loan Term: 3 to 5 years
- Origination fee: 0.99 %
- Late Payment fee: $15
- Early Payoff fee: $15
Pros are as follows:
- It offers a minimum starting amount in some U.S states.
- It offers the availability of paying directly to creditors.
- It offers the range of $2,000 to $50,000 as the loan amount.
Cons are as follows:
- Users with a credit score below 640 cannot get the loan.
- Its website lacks some solid information about the loan.
- It requires a rate cap of 35.99%.
Lending Club
Lending Club is the best personal loan provider for the option of co-borrowing. It offers loan amounts of $1,000 to 40,000 with a flexible loan term of 3 to 5 years. It provides loans to co-signers and co-borrowers so that users who are not eligible to apply for a loan can get a personal loan. Co-borrowing is a great option for people with a low credit score.
Lending Club provides flexible options for debt consolidations with an APR of 6.34% to 35.89%. It allows borrowers to pay off their repayments directly to creditors. Its funding process takes up to two days for approval.
Features of Lending Club include the following:
- APR range: 6.34% to 35.89%
- Minimum Credit score: N/A
- Loan amount: $1,000 to $40,000
- Minimum Annual Income: $0
- Loan Term: 3 to 5 years
- Origination fee: 3 to 6%
- Late Payment fee: $5 to $15
- Early Payoff fee: None
Pros are as follows:
- It offers the option of co-applicants.
- It provides users the option of changing the due dates of payment.
- It offers the availability of paying directly to creditors for debt consolidation
Cons are as follows:
- Users need to have an APR of 35.89%.
- It charges a late payment fee and origination fee.
PenFed
PenFed is a credit union offering loans to users with an ideal loan amount of $600 to $50,000 for a repayment time of 1 to 5 years. It is a great choice for users who want to have a low-amount loan. Also, users don’t have to worry about their APRs, as PenFed offers applicants a lower APR of 4.99% ranging to 17.99%.
PenFed provides users with seven days of customer support and loan information via its mobile application. Its funding process is of more than two business days. It charges no origination fee but takes an early payment penalty of $30 and a late payment fee of $29.
Features of PenFed include the following:
- APR range: 4.99% to 17.99%
- Minimum Credit score: N/A
- Loan amount: $600 to $50,000
- Minimum Annual Income: $0
- Loan Term: 1 to 5 years
- Origination fee: None
- Late Payment fee: $29
- Early Payoff fee: $30
Pros are as follows:
- Everyone can avail of a Credit Union membership.
- It offers a minimum loan amount of $600.
- It provides the option of applying for a loan with a co-borrower.
- It provides the option of taking funds physically.
Cons are as follows:
- It only offers the option of getting a physical check.
- Without a membership, users can avail any funds.
- It offers a maximum loan amount of $50,000.
- It charges a $29 fee for late payment.
Frequently Asked Questions (FAQs)
Now that we have gone through the best personal loans let’s look at some of the questions people usually have concerning personal loans.
What Documents Are Required for Personal Loans?
For the approval of a personal loan, the lender requires some of your documents so that your personal and financial information can prove your identity. The documentation requirements depend on the lender, but some documents are similar to all lenders.
The initial process of verification requires you to prove some things. They are:
- Loan application: The format of loan applications is different for all lenders. They require different requirements to follow in a loan application. The application method, online or physically, will also affect the loan application.
- Identity proof: For the verification of your U.S citizenship, permanent residence, and age, a lender needs to have your identity proof. For identity verification, the documents you should have are Passport, State Issued ID, Birth certificate, Social security card, and Driver’s license.
- Income verification: A lender must know about your permanent and strong income or employment to approve a personal loan. To prove the income, you must provide documents like Tax returns, Bank statements, Paystubs, and employer contact details.
- Address Proof: Lenders need to know about your lifestyle through your address verification. To prove your address, you must provide Property tax receipts, utility bills, bank or credit card statements, home insurance, vehicle, and voter registration card.
How Much Will a Personal Loan Cost?
The online lending platforms and marketplaces have eased access to personal loans. A personal loan requires having in-depth information about your borrowing history, credit score, and income. Personal loan costs include interest, origination fees, late payment, and early payoff. Let’s look at each of them one by one.
- Interest: The interest rate, or APR, is the annual charge rate one pays to avail of a loan. But as annual payments are difficult to pay, the process is now divided into monthly payments. There are two types of APRs; Fixed-rate APRs that are fixed for each month and Variable-rate APRs that can change over time.
- Origination Fee: The origination fee is the charge one has to pay for administration and starting the process. Usually, the lenders charge origination fees from 1% to 5%. Many personal loan providers don’t charge origination fees, but for that, you must have a good credit score.
- Early Payoff fee: Some lenders charge an early payoff penalty to avoid the extra initial payments in the beginning. Early payments can raise the risk of your paying the debt in a short period. It’s better to avoid an early payoff penalty.
- Late Fee: Lenders charge late fees if you can’t make payments on time. The rate of late payment penalty depends from lender to lender. Lenders such as SoFi, Lightstream, and Marcus don’t charge late payment fees.
Where Can an Individual Get a Personal Loan?
Individuals can get personal loans from three different places, including Banks, online lenders, and credit unions. Let’s take a look at each of them.
- Banks: Many national and local banks and institutions offer personal loans. Moreover, they provide offers like saving accounts under financial services.
- Online Lenders: Online lenders are non-bank companies offering auto and personal loans.
- Credit Unions: Credit unions are loan providers present locally and offer both online and offline applications.
How Many Personal Loans Can You Have at Once?
The number of personal loans at a time heavily depends on lenders. You can have one or more personal loans with one or different lenders at a time. But if you have more personal loans, the risk of getting rejected by other lenders is high.
Can You Use a Personal Loan for Anything?
Yes, Personal loans are applied for all purposes. Like other loans such as car loans and mortgages, personal loans don’t come under collateral security. So they can be used for everything.
Can I Get a Personal Loan While Unemployed?
If you are unemployed, you can get a personal loan. But you must provide information about alternative income resources to get approved for a personal loan. The basic documentation lenders require for your loan approval includes the proof of income.
Conclusion
This article covers the best personal loans and all the related information a person would need. In the beginning section, we have covered the basics of personal loans to ensure that beginners can understand it in depth. Moreover, the next section covered how a personal loan works and what procedure should be followed by a prospective borrower.
The pros and cons of personal loans show how this loan helps people and at what cost. The article further describes the different types of personal loans to give an in-depth idea of where people can utilize the money they receive. Lastly, we covered the best personal loans offered in the industry by various companies and whose reviews are outstanding by people who have availed their services.
