Best Personal Loans for 2018
There are a lot of reasons why you might want to apply for a personal loan. From wanting to renovate your home to having to buy a new car, personal loans are a relatively easy way to access additional cash when you need it. They also tend to offer much more attractive interest rates compared to using credit cards for these types of expenses.
But if you’ve never applied for a personal loan before, you might be worried that the process will be difficult, time consuming, or confusing. To help you navigate applying for an unsecured personal loan, we made this quick guide.
More Information About Best Personal Loans for 2018
There are two main types of financing to consider:
A secured personal loan requires the borrower to submit some form of collateral. This collateral needs to be either material with value or legitimate cash. From the lenders perspective, a secured loan has a safety net to fall back on if the borrower defaults. From the other perspective, the borrower takes on a bit more risk since they can lose this collateral. These are less common with some lenders, but they do exist as options.
Unsecured personal loans are the more common option, but come with much more risk (and consequently, higher interest rates). The lender takes on much more accountability with an unsecured loan, so the application approval process is a bit stricter for unsecured personal loans than its secured counterpart. In short, these loans are not backed by anything, so borrowers need to have excellent credit if they want the best interest rates on an unsecured personal loan.
A new sort of subset of an unsecured personal loan is the peer-to-peer financing. Many of the best online companies operate in a peer-to-peer marketplace. A peer-to-peer product is backed by multiple third-party investors who have invested through a lending partner, who may also service the loans.
What is a Personal Loan Used for?
Personal loans can be used for:
- To consolidate credit card debt
- Medical bills
- Home repair
- Moving expenses
- Funeral expenses
- Anything else you need money for
A tough or unexpected financial situation can mean just about anything, so you may be wondering what this type of financing can actually be used for. Well, the answer to this question may surprise you. Just about any financial situation can warrant a personal loan.
The most common reason is debt consolidation. Consumers who have multiple and various forms of debt have the option to consolidate this debt with an unsecured loan. The end result is one source of debt with a one new annual percentage rate (APR) which saves money on overall interest payments.
Aside from debt consolidation, the best reasons include medical bills, relocation expenses, dental bills, a celebration, or a new car purchase. While these all sound like standard reasons for borrowing, there are other reasons for using unsecured personal loans that are fairly surprising – whether you need a large or a small personal loan.
One positive of the best online personal loans is their degree of flexibility. You can qualify for financing for reasons other than financial hardship. There is a great example to illustrate this point; for instance, extra money for a vacation trip is a perfectly acceptable reason that qualifies on a personal loan application. If you have excellent credit, there is really no reason you cannot qualify for the best personal loans. This means you can get financing for new furniture, solar panels, a suit for an interview, or anything else. When you cannot find your reason on a lender drop-down list, you can literally select “other” and explain your reasoning.
Just to reiterate, a borrower with good credit can qualify for the best personal loans for just about any reason. Those with excellent credit can qualify for some of the best personal loan interest rates on the market. When you throw in the peer-to-peer marketplace aspect, it can get much easier to get approved. If you cannot wait and are willing to deal with interest, then check out some of these online personal loan companies below.
How to Apply for Personal Loans
Applying at Credit Unions
Credit unions or local banks are great places to apply because they often have broader lending criteria than big banks. If you bank with a credit union, you should apply there first as they might be able to give you a lower interest rate or give you the benefit of the doubt if your finances don’t make you an ideal candidate.
You’ll have to go into the bank and meet with a financing officer to discuss the type of financing you’re interested in and review your financial details. Dealing with a bank could mean that you get your money more quickly and they might offer more flexible terms than an online lender, but they often have the highest criteria for credit worthiness. That means it might be difficult for many people to qualify for a financing from a credit union or local bank.
Applying Through Best Online Lenders and Lending Partners
These days, online lenders and lending partners are offering installment options that are incredibly easy to apply for. They often have more flexible criteria than even the best credit unions and banks and that means that you’re more likely to get approved. Interest rates can sometimes even be lower than you would get at credit unions as well.
Applying with an online lender or lending partner doesn’t take a lot of time and you don’t need an appointment with a financing officer. You just log on, fill out their forms, send them some scans of important documents, and you could hear whether you’ve been approved in as little time as a few minutes.
Each lender or lending partner has slightly different approval criteria, but, in general, most best lenders or lending partners will look at your FICO credit score and your income. The higher your income and credit score, the more likely you are to get approved for an unsecured financing.
Online companies tend to be more willing to approve borrowers who don’t have ideal credit scores, and they’re also starting to use additional criteria in order to make their credit decisions.
In fact, some online companies like SoFi and Earnest don’t use FICO credit scores to determine their lending decisions and instead focus on things like cash flow, savings, income potential, and employment history. These factors can make originating unsecured debt easier.
Information You’ll Need When Applying
When you’re applying you will need to provide the lender or lending partner with the information that they require to make their lending decisions.
For lenders or lending partners with alternative credit models, that might include additional information like your alma mater or your employment history. When applying to the best companies, you will likely need the following information:
- Identification – Whether it is a driver’s license, Social Security card, or passport
- Proof of Income – If you have an employer, you will need your W-2 forms and pay stubs. If you’re self-employed, you will need your tax returns or bank statements
- Verification of Address – You need an official piece of mail like utility bills with your address on it or a copy of your lease or deed
- Social Security Number
- A list of monthly expenses and current debt
- Your gross income
- Previous addresses
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