Banks are not always the best option for those who need a personal loan. Although they make it very easy to apply and get your money, they do have some disadvantages in that you may end up paying more in interest than you would like. There are also some barriers to obtaining a credit card, such as a lack of funds.
If this is the case then you should consider getting a personal loan from an online lender like Kabbage or LendingClub.
Run the numbers
At first, you may be skeptical about the amount of interest you will pay. It's true that these lenders charge an average APR of 18% (Kabbage) or an average annual percentage rate (APR) of 36% (LendingClub), but the total amount you borrow is often so much smaller than the interest charges. For example, let's say that you need $5,000 to purchase a home or car. The bank is going to require a $5,000 down payment in addition to a $25 monthly mortgage payment and perhaps other charges. If we factor this all in, it would come with an interest rate of 12%.
Check your credit score
It is also important to look into the credit score. Many lenders do consider credit scores when accepting your application. If you have a low credit score then it will affect your rates and eligibility for the loan, so it is best to check into that early on in the process.
Proof of income
Getting a personal loan through an online lender is not necessarily dependent on having good credit as long as you are earning money in some way. For example, if you've had a job at a company that has let you go and are now looking to start your own business then this will be considered proof of income.
Consider your options
Depending on the type of loan that you are applying for, there are different options available. Usually, a personal loan will have a higher APR and lower interest rate than a credit card, but you will still be charged interest.
"For example, if you need $5,000 to purchase a home or car at an annual interest rate of only 10%, then the bank may charge 20% on average. The Kabbage Personal Loan has an average APR of 18% and Lending Club Personal Loan does not charge any interest during the first year after your account is opened (0%). If you compare this to what the bank could charge for their services then the Kabbage option is definitely a better choice because it saves money in the long run. For example, from some services, you can get a $1,000 credit card limit with no deposit but someone will ask for a lot of documents and papers to just get a 500$ dollars credit card with a high deposit. So you should monitor everything and be ready for different things all around the internet."
Choose your loan type:
- Personal loan
- Home equity loan
- Auto loan
- Unsecured debt consolidation loans (sometimes referred to as an "emergency fund" or a "rainy day account")
- Business loans.
A personal loan is exactly what it sounds like: credit from a bank or other financial institution that you personally use and repay. A home equity loan is borrowing against the value of your home, at favorable rates and terms. An auto loan gets money for buying, leasing, or renting a car; leasing and renting can be more affordable than outright ownership in some circumstances.
Shop around for the best personal loan rates
- Bankrate.com offers comparative rate information to let you shop around for the best loan terms.
- CreditCards.com (requires paid subscription) offers a credit card comparison tool that makes it easy to quickly compare potential options.
- NerdWallet (requires paid subscription) uses comparison data from a variety of leading Web sites and takes into account your credit score, monthly income, and other factors to find you the best rates for your specific circumstances.
Use a personal loan calculator
For straightforward estimates of what you may be able to borrow, use a personal loan calculator like the ones at LendingTree or Bankrate.com (requires paid subscription).
Pick a lender and apply
Lenders will differ in factors such as minimum and maximum loan amounts, rates, fees, and terms.
Consider the fine print. What is the maximum annual percentage rate (APR) on this loan? - Are there any prepayment penalties if I pay off my loan early? - What is the total cost of my loan over the life of the loan? Remember to add up all your monthly payments plus any fees or interest charges.
Provide necessary documentation
You'll need to provide a few documents, such as a recent (within the last six months) pay stub, recent tax return, most recent bank statement, and a personal financial statement. Lenders work with both public and private records to verify your income, assets, expenses, and other information before approving a loan.
Once approved, you will receive documentation of your loan disbursements.
Follow payment agreements
Rules vary by state and lender. You'll need to follow the terms of your agreement: how often you pay it back; whether the balance is paid in full each month or is extended over several months; what happens if you miss a payment; etc.
The sum of this article is that loans can be beneficial for you, but it will depend on these 9 steps. By reading these steps, you will get to know how much higher a chance you have of getting a loan or what the drawbacks are of personal loans vs state funds.