The Pros and Cons of Personal Loans
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We’ve all seen ads for the best online personal loans and even received promotions in the mail, claiming low interest rates and quick cash flow. So are personal loan options too good to be true? Below we break down the upside and downside of these types of loans.
First, it is important to review the basics of personal loans. There are two types of personal loans, unsecured and secured.
A secured loan is a loan that is backed by an asset as collateral (home or car) . If you default on the loan, the lender can take the asset. A secured loan typically offers lower interest rates and better overall loan terms. These loans are also often ideal for someone with bad credit. A credit repair company can also help if your credit score is not good enough to secure an unsecured loan.
Unsecured loans have no collateral, however if default occurs the bank can take legal action in hopes to recoup the money. Due to the fact that these type of loans tend to be riskier, they have higher interest rates and often poor loan terms.
Both types of loans are taken out for a set period of time and have a fixed monthly repayment schedule.
Deciding whether a personal loan is a good fit is largely dependent on the interest rate. Most times the interest rate is determined by your income and credit score. The higher your combined credit score and income, the lower the interest rate. Additionally, interest rates may vary by state and bank, making it important to shop around for the best rate.
- Certain personal loans penalize borrowers for early repayment, have high interest rates and poor terms.
- Most personal loans do not allow part payment which means you pay the entire loan period, often paying a significant amount in interest.
- Due to the fact that these loans are considered high risk, most lenders require good credit.
- Lenders who offer loans to individuals with low credit scores often impose stricter repayment terms on these borrowers.
- Personal loans allow for flexibility and can be used for a number of purposes. For example, these type of loans are good for home improvement and debt consolidation.
- Personal loans are much easier to get than other type of loans such as mortgages, typically only using a few credit checks to qualify borrowers.
- Looking to pay off credit card debt? Personal loans are a great option IF you can secure a lower interest rate than offered by your credit card company.
- Quick cash. If you are in need of cash, a personal loan tends to have lower interest rates than a cash advance on your credit card.
So is a personal loan a good idea for you? The answer is largely dependent on your specific circumstances. Do you need cash in a hurry, or want to take out a loan without explaining your reason? Then personal loans are your best bet. Below are our favorite personal loan lenders:
SoFi Loans Review
- Best For: Refinancing student loans. SoFi offers refinancing to those with lower credit scores (650 and above), which makes it easier for people to get financing.
- Interest rates: The interest rates depend on the kind of loan you are applying for, but student loan refinancing interest rates are generally: Fixed: 4.25 percent to 7.75 percent APR. Variable: 2.97 percent to 6.15 percent APR.
- Loan types: SoFi is best known for student loan refinancing, but it also offers actual student loans for your (or your child’s) education. In addition, it also offers mortgages and personal loans.
- Unemployment protection: SoFi offers up to 12 months of protection from paying on your loan if you become unemployed. This is a great feature, although some lenders offer a longer period if you’re unable to pay due to unemployment.
- Customer Service: SoFi is best known for its customer service skills and making loans accessible to a wider range of people.
Upstart Loans Review
- Best for: Upstart debt consolidation is a good option for those who can’t get approved for a personal loan. Upstart looks at a wide range of factors to approve you, and it is known for approving those with 40 percent to 50 percent debt-to-income ratio, which is very uncommon for a loan company.
- Price: Interest rates for loans from Upstart range from 8.36 percent to 29.99 percent, which is pretty standard for a loan.
- Loan length: Upstart has a shorter loan length period than many banks, at 3-5 years, although that is still a good amount of time to pay off your loan.
- Loan amount: Your loan amount will depend on your financial history and what you are using your loan for. Loans for paying off credit card bills will tend to be lower, while business loans will tend to be higher. Upstart’s loan amounts range from $1,000 to $50,000.
- Criteria: An Upstart loan review determines who is eligible for a loan using a range of criteria, which include your credit score, years of credit, education, area of study and employment history.
LendingTree Review
- Best for: Those looking for the most amount of options. LendingTree partners with over 1,500 lenders to give you as many options as possible when you are looking for a loan.
- Interest rates: Interest rates for loans from LendingTree vary widely because they aggregate offers from third-party lenders, who determine their own rates.
- Types of Loans: LendingTree offers a wide range of loans to choose from, for any of your lending needs, including mortgages, car loans, personal loans, business loans, credit cards, and student loans.
- Loan amount: Since LendingTree partners with third-party lenders, the amount of each loan varies depending on what the partner lender offers, but loans typically can range from $1,000 to $100,000.
Lending Club Review
- Interest rates: Lending Club’s rates fluctuate depending on your credit and other factors that it uses to determine your eligibility for a loan. The APR ranges between 5.99 percent and 32.99 percent. There is also an origination fee, which ranges between 0.99 percent and 5.99 percent. Lending Club’s late fee is $15 or 5 percent, whichever is greater, and the check-processing fee is $15.
- Loan qualifications: Like traditional loans, you need certain qualifications to get approved. Lending Club looks for an average credit score or above, along with proof of income and a low debt-to-income ratio. You must also be 18 to apply.
- Loan amounts: The maximum loan amount for Lending Club is $40,000, which is in line with most other online loan providers, while the minimum loan amount is $1,000, which is the lowest minimum among online personal loan providers, which makes it a good option for those who are looking for a quick, low-cost loan.
- Partial loans: Lending Club offers partial loans. If investors commit to at least 60 percent of your loan, you can decide to accept the partial amount or turn it down and apply for a new loan.
Prosper Review
- Interest rates: Prosper’s rates fluctuate depending on your credit and other factors that it uses to determine your eligibility for a loan. The APR ranges between 6.73 percent and 35.97 percent. There is also an origination fee, which ranges between 1 percent and 5 percent. Prosper’s late fee is $15 or 5 percent, whichever is greater, and the check-processing fee is $15.
- Loan qualifications: Unlike some other online loan services we review, you need at least a good credit score (instead of average), proof of income and a low (30 percent or below) debt-to-income ratio to get approved for a loan by Prosper.
- Loan amounts: The maximum loan amount for Prosper is $35,000, which is in line with most other online loan providers, while the minimum loan amount is $2,000, which is not the lowest minimum among online person loan providers, but still makes Prosper a good option for those who are just looking for a quick, low-cost loan.
- Partial loans: Prosper does offer partial loans. If your loan is at least 70 percent funded before the 14 days are up, you can choose to take the 70 percent of your loan or cancel the loan and apply again.
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