You get home from work and realize the bathroom sink has been leaking all day. The bathroom floor, basement wall, and ceiling are ruined. How will you pay for this?
Your daughter comes home with exciting news – she is getting married! As you start making wedding plans, you wonder, "How will I pay for this?"
First, you went to the ER for a broken arm. Next, it was a stitches. Now, it seems as though you need your gallbladder removed. Instead of thinking about your health, you think, "How will I pay for this?"
COVID-19 hit. You had only been at your job for four months previously. Of course, you were one of the ones let go in the wake of the pandemic. Your bills keep coming each month, but your paycheck has stopped. How can you pay for everything?
These are a few examples of how a personal loan could be the answer to the question of, "How will I pay for this?" A personal loan may be the answer. Let's explore the top ten personal loan questions you may have.
What is a personal loan?
A personal loan is a loan you apply for to cover personal reasons. These loans are different than auto and home loans. Most banks offering auto and home loans also offer personal loans.
With a personal loan, you borrow money from a lender and pay back the money loaned in fixed monthly payments. To repay personal loans generally takes one to five years.
What can I use a personal loan for?
A personal loan is set up as a loan for personal use, just as the name implies. You can use a personal loan for a variety of options. Some of these options include:
- Large purchases like a boat, RV, furniture, or TV
- Home improvements including renovations, a new roof or furnace, or fixing damage
- Debt consolidation to pay off medical bills, credit card debt, and department store credit cards
- Life events including births, graduations, weddings, anniversaries, divorce, or funerals
- Starting a new business
- Travel, vacations, or entertainment
- Investment opportunities
- Moving expenses
- Holidays like birthdays or Christmas
You cannot apply for a personal loan to cover college expenses or a down payment on a home.
Do banks offer personal loans?
You can apply for a personal loan through your typical bank or credit union. There are also online banks offering personal loans. The online lenders may offer slightly better interest rates than brick-and-mortar banks. Some of those lenders include:
These companies specialize in personal lending. They offer good lending term lengths with competitive interest rates. Your specific rate depends on your qualifications.
Is a personal loan the same as a payday loan?
No. Payday loans are for short-term borrowing. They are to help cover immediate needs. Most payday loans must be paid off by your next paycheck. Personal loans are for longer-term borrowing. The repayment terms range from one to five years. The lender sets up monthly payments for the life of the loan.
The interest rates on payday loans are much higher than personal loan rates. Some payday loan interest rates can range from 100 to 300 percent. Personal loan interest rates typically range from six percent to 40 percent.
Payday loan amounts are generally between $300 to $1,000. The maximum payday loan amount may depend on the state where you live. Personal loan amounts can range from $1,000 to $100,000. The maximum personal loan amounts vary depending on the lender and your qualifications.
Payday loan companies can require collateral when you apply for a loan. The accepted collateral can include jewelry, investments, car titles, or other assets. If you fail to repay your loan, the payday company takes the collateral. Personal loans are unsecured, meaning no collateral is required when you apply for a loan.
What part of my credit will the lender check?
Before a lender agrees to the loan, they do a soft credit check. As part of the soft credit check, the lender may require the following information:
- Current annual income
- Job history and job length
- Debt-to-income ratio
- Credit score
- Credit history length
- Bankruptcy history
- Past loan denials within the same company and other companies
What information do I need to apply for a loan?
When you apply for a loan, the lender will do a soft credit check. The soft credit check does not hurt your credit score. To run the soft credit check generally requires your:
- Social Security Number
- Driver's license or other government-issued identification
- Bank account information
To apply for a personal loan, you must be over 18 years old and a U.S. citizen or permanent resident. If the soft credit check comes back in good standing, the lender will run a hard credit check. They use the same information to run the hard credit check and this credit check will impact your credit score.
How long will approval take?
Approval times vary between lenders. Most online lending companies can tell you the same business day if you qualify. You should know within five business days for most lenders.
Lenders could offer a preapproval instantly based on the soft credit check. After preapproval, if you want to continue with the loan, the lender will do a hard credit check. The hard credit check does affect your credit score. If the lender likes what he sees from the hard credit check, approval could be the same day.
If I am denied a loan with one company, can I apply with another lender?
The minimum requirements you must meet to qualify for the loan varies with each lender. If you do not meet the minimum requirements for one lender, you could qualify with another lender. Applying with a cosigner could also help you qualify.
There may be a waiting period before you can reapply if you are denied a loan with one lender. The waiting period can be anywhere from 24-hours to six-months, or until your finances change.
How long will it take the money to enter my account?
Lenders wait to transfer money until after the hard credit check and approval. The hard credit check does affect your credit score.
Once you have approval from the hard credit check, the money could be in your account the same day as approval. Again, the funding time depends on the lender and your qualifications. Lenders can take up to one to two weeks to transfer the money into your account.
Receiving money through electronic transfers is quicker than a check. During the application, the lender will ask for a valid bank account to transfer the money. ACH is the quickest and safest way to receive your money.
What are the typical fees associated with personal loans?
The most common fees associated with personal loans are the origination fees. This is the fee charged by the lender to process your loan. The origination fee could be rolled into the loan balance. Other lenders may require you to pay the origination fee before you receive the money.
The origination fees for personal loans range from one to eight percent of the loan amount. There are many factors that go into figuring out the amount of the origination fee. Some of those factors can include your credit history, the loan amount, the loan length, and the lender.
Not all banks, credit unions, and online lenders charge an origination fee. The percentage charged for the origination fee can also vary based on the lender. Some lenders will add the origination fees to the loan amount; others will include it in the loan amount. If you apply for a loan of $10,000 and the origination fee is $1,000, your loan would be for $11,000. Other lenders include it in the loan amount. If you apply for a $10,000 loan and the fees are $1,000, your personal loan would be for $9,000, with the other $1,000 going toward the origination fee. In either case, you must repay the full amount.
Some lenders may charge other fees like an application or processing fee. Know what the fees are before you apply for the loan. The total cost of the fees can be rolled into the loan amount in the previous ways discussed.
How do I find the best online lenders?
The best rates for personal loans depend mostly on your credit history. But there are other factors to consider when looking to find the best lender. Be sure to consider the repayment options. Some lenders offer an interest rate discount for making payments through automatic withdrawals. Other lenders have a fee if you make your monthly payments with a check or over the phone.
Not every lender offers cosigner or joint loans. If you do not think you qualify, find a lender who offers joint or cosigner loans.
The best personal loan lenders offer fixed interest rates. You know what the monthly payments are from the time you receive the loan. Your monthly payment and interest rates will not change unless you refinance. You can always pay more on the principal balance each month, but you must make at least the minimum required amount.
EQLender offers easy access to the best personal loan lenders. Here you can see reviews for a variety of lenders. You can see the interest rates each bank offers, and what types of personal loans you can apply for. You can see the range of loan amounts and the term lengths offered through each lender. You can see how to make your monthly payments and if there are specific payment fees.
Is a personal loan the right option for you?
Now you have the basic information. Is a personal loan right for your financial situation? EQLender cannot answer this question for you. Look at your finances, credit history, and the lending options available. Weigh the pros from the cons to decide if you want to apply.
As always, saving money to cover the expense is always the best option, but not always feasible. If you find yourself in a bind and think a personal loan is the answer for you, let EQLender help you find the best lender for your situation.