Personal Loans Online

Most people think of personal loans as something they would only get from a bank or other financial institution. However, there are now many lending companies that offer personal loans online. This can be an excellent option for those who need a loan but do not want to go through the hassle of visiting a bank or other lender in person.

When you search for personal loans near me, you will likely come across several different lending companies that offer these types of loans.

This guide will help you understand how personal loans online work, the different types available, the benefits, risks, alternatives to personal loans, and more.

What Is a Personal Loan?

Let’s start with the basics and define what a personal loan is. Typically, a personal loan is unsecured, which means it isn’t backed by any collateral on your part. Personal loans don’t need to be earmarked for specific purchases like a car loan or a mortgage. You can use the funds from a personal loan for anything you want – debt consolidation, home improvements, or anything else.

Personal loans are paid back in monthly installments, similar to other loans. The monthly payment is typically determined by the size of the loan and the interest rate. Personal loan lenders will consider your credit score, credit usage, income, and debts when deciding whether to approve you for a loan and what interest rate to charge you. They may also charge fees, such as origination fees or late payment fees if you miss a payment.

What to Consider Before Taking Out a Personal Loan

Before you apply for a personal loan, there are a few questions you need to ask yourself.

The obvious place to start is what is the purpose of the loan. As mentioned earlier, personal loans can be used for various purposes. You must clearly understand what you need it for and the loan amount you will need to borrow. This can help prevent you from borrowing more money than you need or taking out a loan for an unnecessary purchase.

There are 101 reasons why people take out personal loans. Common reasons include consolidating debt, home improvement, medical bills, vacations, and wedding costs.

Is a personal loan the best option? There are several alternatives to personal loans that you should consider. We will discuss some of those alternatives later on.

You should also consider whether you can afford the monthly payments on the loan. Loan terms can vary, but typically a  personal loan have a shorter repayment schedule than a mortgage or car loan. This means that the monthly payments will be higher, so you must ensure that you can comfortably make those payments.

Another consideration is your credit score. Your credit score is key in determining whether you will be approved for a loan and what interest rate you will be offered. If you have a good credit score, you are more likely to be approved for a loan and offered a lower interest rate. However, if your credit score is not as good, you may still be able to get a loan, but you will likely be offered a higher interest rate.

How to Apply for a Personal Loan

Personal loans are issued by banks, credit unions, or online lenders. Applying for a personal loan online has to be the most convenient option. You don’t have to take time out of your busy day to visit a bank in person, and you are free to apply for a personal loan when it’s most suitable for you.

The application process for a personal loan online is very straightforward. Lenders require you to provide your name, address, employment information, and annual income. You’ll also be asked to provide details about your credit history.

Once you have submitted your application, the lender will review it and decide on whether or not to approve you for a loan. If you get loan approval, you will be given an offer that includes the terms of the loan, including the interest rate, loan term repayment period, and monthly payments. If you accept the offer, the funds will be deposited into your bank account for you to use.

Types of Personal Loans Available

When it comes to types of personal loans, there are many options to choose from; these are some of the most common.

Unsecured Personal Loans

Most personal loans are unsecured, making them one of the safest loans for the borrower but riskier for the lender. While an unsecured loan won’t have the same high-interest rates as a payday loan, you’ll typically find that the rates aren’t as low as secured loans. If you have a good credit score, you should be able to find a competitive rate if you shop around.

Secured Personal Loans

A secured loan is when your loan is backed by collateral, which could be an asset such as your home, car, or another valuable item. If your credit history is not good enough to get an unsecured loan, or you need a larger loan amount, you may have to consider a secured loan. The interest rates on secured loans are typically lower than on unsecured loans.

But you will be putting your asset at risk if you default on the loan despite the favorable loan terms.

Debt Consolidation Loans

A debt consolidation loan combines all your outstanding debts into one loan with a lower interest rate than your current debts. By combining all of your debts into one single monthly payment, you not only save money but it also makes it easier to keep track of all your payments.

Similarly, you can consolidate credit card debt by taking out a personal loan and using it to pay off your credit card debt. This should enable you to pay off your debt faster and have loan terms that are more favorable than your credit card terms.

Fixed Rate Personal Loans

A personal loan with a fixed interest rate makes sense for borrowers who don’t want any surprises down the road with sudden spikes in interest rates. With a fixed interest rate, you’ll know how much your monthly payments and they will stay the same for the life of the loan.

Variable Rate Personal Loans

It’s not so common to see personal loan terms with a variable rate, but it is possible. A variable rate loan means your interest rate could change over time, either going up or down. Variable rates are usually linked to an economic index such as the prime rate. If the prime rate goes up, your interest rate will likely increase; likewise, if the prime rate goes down, your interest rate will decrease.

You need to be aware that your monthly payments could become unaffordable if rates do increase significantly. If you are considering a variable-rate loan, make sure to factor in a potential increase in payments.

Home Improvement Loans

Arguably, one of the best uses for a personal loan is to make home improvements. Home improvement loans usually have lower interest rates than other types of loans, making them an attractive option if you need to borrow money for repairs or renovations.

In most cases, you can use a home improvement loan for any type of repair or renovation, from fixing a leaky roof to updating your kitchen. A home improvement loan is worth considering if you’re planning on making any major changes to your home. In the long term, it could save you money by making your home more energy-efficient or adding value to your property.

Joint Personal Loans

As the name suggests, a joint personal loan is when two people are both responsible for repaying the loan amount. This can be a family member, friend, or even a co-signer. It’s a good option if you need to borrow a large amount of money and can’t qualify for a loan on your own. But there has to be a high level of trust between the two parties, as both names will be on the loan agreement, and any late payments will damage both credit scores.

Personal Loan Benefits

Let’s explore the pros and cons of taking out a personal loan, starting with the benefits.

Lower Interest Rates

Personal loan interest rates are relatively low compared to other borrowing methods, such as payday loans or credit card cash advances. Of course, this depends on your creditworthiness, but personal loan rates generally are lower than other types of loans.

No Collateral Needed

Having significant assets tied up in collateral can be worrisome. If you default on the loan, there’s a chance you could lose your car or even a roof over your head. With a personal loan, there’s no collateral required, so you don’t have to stress about losing any of your assets if you can’t make the payments.

Versatile Usage

Once you get loan approval, you are free to use the money however you see fit. As we’ve already mentioned, it can be used to consolidate debt, pay for a vacation, a large one-off purchase, to pay for education fees, to name a few examples.

Also, you won’t be penalized for using the loan for something other than what you originally intended.

Of course, it’s always best to use the loan for its intended purpose. Still, if you find yourself in a situation where you need to use the loan for something other than what you originally planned, it’s nice to know that personal loans are flexible and can be used for almost any purpose.

Predictable Monthly Payments

Knowing how much money is coming out of your banking or checking account every month can make budgeting a whole lot easier. With a personal loan, your payments are fixed, so you’ll always know how much needs to be set aside each month.

No Prepayment Penalties

Most personal loan providers won’t penalize you for doing so if you come into some extra money and want to pay off your loan early. This is not the case with all loans, such as auto loans, that include a prepayment penalty if you pay off the loan early.

Personal Loan Disadvantages

Now, let’s look at some potential disadvantages of taking out a personal loan.

Potential for High-Interest Rates

If you have bad credit, you may be offered a personal loan with a high-interest rate. While this is still lower than other types of loans, such as payday loans, it can still make repaying the loan more difficult.

Loan Origination Fee

The lender can charge origination fees for processing the loan. These fees are typically between 1% and 5% of the total loan amount and can add up quickly. Make sure to factor in these fees when considering a personal loan.

Lengthy Repayment Terms

Depending on the loan size, personal loans can have repayment terms that last anywhere from two to seven years. This can be a good thing if you need some time to repay the loan, but it also means you’ll be paying interest for a more extended period of time.

Minimum Monthly Payments

Personal loans typically have a minimum monthly payment, which is higher than that of a credit card. This can make it challenging to make your payment if you have a tight month financially.

Alternatives to Personal Loans

Several personal loan alternatives might be more suitable in certain situations or if you have difficulty securing a personal loan.

Title Loan

A title loan is a short-term loan that uses your car’s title as collateral. A title loan enables you to get cash quickly and without the hassle.

One of the main benefits of a title loan is that there are no credit checks. This means that you can still qualify for a loan even if you have bad credit. Another benefit is that you get to keep your car. While paying the loan, you can still keep driving your vehicle.

Most title loans are repaid within 30 days, but sometimes extensions are available. You can learn more about the benefits of title loans here.

Payday Loan

Payday loans are a type of short-term loan that can provide you with the funds you need in a pinch. They’re generally easy to qualify for, even if you have bad credit, and they can be deposited into your savings or checking account within one business day.

To qualify for a payday loan, you’ll need to have a steady source of income and be able to show proof of employment. Additionally, most payday lenders will require some form of credit approval to ensure you can repay the loan.

These loans can be helpful if you need a little extra money to tide you over until your next paycheck, but it’s crucial that you pay them back on time. If you don’t, you’ll likely be charged high fees and interest rates, which can quickly turn a small loan into a large debt.

401K Loan

Most people are familiar with the basics of a 401K retirement savings plan. Employees can elect to have a portion of their paychecks deposited into the account, and the money is tax-deferred until withdrawal. However, what some people may not realize is that 401K plans also offer the option to take out loans.

Taking a loan from your 401K can be a quick and easy way to access cash fast, but it’s important to understand the implications before making a decision. For one thing, if you leave your job for any reason, the loan will usually become due immediately. Failure to repay the loan can also result in hefty taxes and penalties.

Credit Card Cash Advance

A cash advance is a service most credit card companies provide. It allows the cardholder to withdraw cash using an ATM or over the counter at a bank up to a specific limit.

Cash advances can be helpful in emergencies, but they come with important caveats. Most credit cards charge higher interest rates for cash advances than regular purchases. Cardholders will also accrue interest on their cash advance as soon as the money is withdrawn. Additionally, many credit cards charge a cash advance fee, varying from a few dollars to several percentage points of the total amount withdrawn.

These fees can all add up to make cash advances an expensive way of borrowing.

Home Equity Loan

Home equity loans are popular because they offer a lower interest rate than other types of loans, but they also use the value of your home as collateral. Home equity refers to the difference between the appraised value of your home and the outstanding debt on your mortgage. So if your home is worth $400,000 and you owe $200,000 on your mortgage, you have $200,000 in home equity.

Peer-to-Peer Loan

A peer-to-peer loan is a type of loan that allows individuals to borrow and lend money without the use of a traditional financial institution, such as a bank or credit union. The loans are typically facilitated by an online lending platform that brings borrowers and lenders together. Some popular P2P lending platforms include Prosper, LendingClub, and Upstart.

In Conclusion

We hope this guide has helped you navigate the world of personal loans online. The biggest takeaway is that you should understand the terms and conditions and loan payment terms before you submit your loan application.

You also might want to explore other options further, especially if you require the loan over a shorter time frame for an emergency situation. In this case, you might consider a title loan or 401K loan if you have one.

Crunch your numbers, decide if you really need the loan, and compare offers before you apply.

FAQs

If I apply for a personal loan, will it affect my credit score?

In some cases, applying for a personal loan will result in a hard credit inquiry on your credit report, and this may temporarily lower your credit score slightly. However, if you have a strong credit history, the impact on your score should be minimal. In fact, taking out a personal loan can actually help improve your credit score by diversifying your credit mix.

If you are worried about how a hard credit inquiry will impact your credit score, look for a personal loan lender that uses a soft credit inquiry that won’t be visible to outside parties.

You should also avoid applying for multiple loans at once, as it can result in multiple hard inquiries on your credit report.

How is my credit score determined?

Several factors can impact your credit score, including debt-to-income ratio, credit history, and recent credit activity. by paying your bills on time, keeping your debt levels low, and maintaining a good credit history, you can maintain a healthy credit score.

How large a personal loan can I take out?

Depending on the lender, loan amounts range from a few hundred to several thousand. The amount you’re eligible for will depend on your creditworthiness and income. For most lenders, the maximum is $100,000.

Are there minimum credit score requirements to secure a personal loan?

Most lenders have a minimum credit score requirement of 610 to 640. However, some online lenders will work with borrowers with lower credit scores.