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How to get a personal loan: Rates and fees

How to get a personal loan: Rates and fees
Written by Publishing Team

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If you have recently lost your income and are financially strapped, or if you are having trouble dealing with your debt, you may consider applying for a personal loan. But what exactly is a personal loan? How is it different from a mortgage or credit card? Is now a good time to get a personal loan, and what is the best way to do it?

CNN Underscored has answers to all of your questions about personal loans to help you decide if getting one is right for you. Let’s dive into the details of how to get a personal loan, and whether a personal loan is right for you.

A personal loan is a type of debt in which a person typically receives a fixed amount of cash from a bank, credit union, or online lender that must be repaid within a specified period of time, often two to five years.

There are many reasons why you might want to take out a personal loan. Usually, you can use the money for any reason, but some of the most common scenarios include paying off debt, consolidating medical bills, starting a business, financing a home renovation or other personal needs.

Personal loans are usually – although not always – unsecured, which means you don’t pledge any assets up front to cover the loan if you fail to pay it back (also known as a “secured”). This is one way personal loans differ from mortgages. Instead, mortgages are secured using your home or possessions as collateral.

Because personal loans are unsecured, they are generally more expensive than secured loans such as a mortgage. But while the secured loan comes with a lower interest rate, if you can’t pay it back, you may lose the asset you gave as security, like your home if you default on your mortgage.

However, even with an unsecured personal loan, if you fail to pay the money back, the lender can still legally claim the amount you owe by sending your loan to a collection agency, and reporting your failure to pay to the credit bureaus (which is painful for your credit score). ) and even sue in court.

Save money with a personal loan offer at LendingTree, an online loan marketplace.

There is no one-size-fits-all option when it comes to applying for a personal loan. You can look for personal loans at banks, credit unions, or from online lenders. There are also online marketplaces like LendingTree that can make it easy to quickly see offers from an entire network of lenders at once.

With an online marketplace, you only need to enter your details once to be considered by multiple lenders. Some of the information you will need to provide includes how much money you need, the purpose of the loan, how quickly you will need the cash, and other basic details.

Once you enter your information, it is sent to dozens of lenders for consideration, and you’ll quickly get a list of personal loan offers that might be right for you. From there, you can determine which offers are best for your situation, and work directly with these specific lenders.

Click here to compare LendingTree’s many personal loan offers.

Based on data from the Federal Reserve, the average 24-month personal loan rate in November 2021 was 9.09%, the latest month for which data is available. However, interest rates on personal loans can vary widely, ranging from 6% to 36% depending on the lender and borrower and the terms of the loan.

Here are the most important factors that determine the interest rate and other costs associated with a personal loan:

loan amount: The amount you want to borrow with a personal loan affects your interest rate, as large personal loans generally come at higher rates. Personal loan amounts can range from $1,000 to $50,000, or even more in some cases.

Length: Interest rates are usually higher for long-term loans, which means that the more time you have to pay off a personal loan, the more you will have to pay for it, as a result of the higher the interest rate and paying interest over a longer period of time.

Balance levelThe higher your credit score, the lower your personal loan interest rate. People with good credit scores also have the best chance of qualifying for a personal loan, although there are personal loans available to those with lower credit scores as well.

Outlay: You will want to keep track of any fees charged in connection with a personal loan. For example, some lenders charge an origination fee, which is a fee to start a personal loan. Creation fees can range from 1% to 8%, but some lenders don’t charge an establishment fee at all, so you’ll want to shop around.

Prepayment fine: If your personal loan has a down payment penalty, you may have to pay additional fees if at some point you decide to pay off the loan early. A typical prepayment penalty might be several months of interest or a percentage of the remaining loan amount. Again, some lenders do not impose prepayment penalties on personal loans, so you’ll want to pay close attention to the terms of your loan.

Check your interest rates on personal loans at LendingTree.

When considering a personal loan, it is important to know how much you will ultimately pay each month. Personal Loan Repayment Calculator will help you to know how much you will owe, monthly and throughout the life of the loan. This is a great tool to use before applying, so you can visualize how much it will cost from a budget point of view.

Enter the total amount you borrow with a personal loan, the interest rate and the term of the loan, and the calculator will instantly divide your monthly and total payments.

For example, let’s say you’re considering a $10,000 personal loan to pay off your medical debt. One lender offers you an interest rate of 9.5%, which you must pay back in five years, but another lender offers you an interest rate of 8% with a three-year repayment period.

You can enter both offers into the personal loan calculator one by one to find out the cost of each offer. The calculator shows that in this case, while the 9.5% interest rate results in a monthly payment of $210, your total payment would be $12,601. On the other hand, the 8% rate will increase your monthly payment to $313, but you will only pay a total of $11281 over the life of the loan, which is a significant savings.

The Personal Loan Calculator also provides a full amortization schedule, which divides the amount you pay for your personal loan into principal versus interest on a monthly basis.

In the end, the Personal Loan Repayment Calculator will do a great deal of hard work for you in figuring out which loan best suits your particular situation.

If there’s one tip to keep in mind when applying for a personal loan — or any loan for that matter — it’s to seek excellent credit. This usually means a credit score of 720 or higher.

With a high score, you will be offered some of the lowest interest rates, as well as the best terms. But even if you have good, not excellent, credit – which generally means a credit score between 680 and 719 – you will still likely be able to get a competitive interest rate on a personal loan.

If you’re on the cusp of a good credit score, one way to improve your score is to lower your debt-to-income ratio, which is how much debt you currently have versus the amount of money you earn. A lower ratio is better, so if you start paying off your debt, there’s a good chance your score will increase enough to move into the “good” credit range.

Of course, regardless of your score, you will still want to do your research on lenders to find a loan with a low interest rate and fair terms. But with a good credit score and a reliable source of income, you won’t have much trouble getting approved.

Get personal loan offers with good to excellent credit at LendingTree.

For many, the transition to a good or excellent credit group can be very challenging. But don’t let that discourage you. While having a fair credit score – between 640 and 679 – is not the ideal place to be, there are still some lenders who will offer you a personal loan.

However, you are likely to find yourself receiving higher interest rates than if you had good or excellent credit. You may also be subject to less desirable personal loan fees or terms, although these may vary based on your income and monthly cash flow.

You will also likely have fewer personal loan options to choose from with a fair credit score, but this is where the online marketplace can come in handy – many different lenders can look at your information at once, giving you the best chance of finding on match.

If you’ve made some poor financial decisions in the past or haven’t had time to build your credit history, your credit score will likely reflect this. A credit score of less than 640 certainly won’t give you the best options when it comes to securing a personal loan, but you might not be completely out of luck.

The online market will present your information to its network of lenders even if you have bad credit, and some lenders will still offer you a personal loan. Unfortunately, you will definitely have to pay a relatively high interest rate if you have a bad credit score. You may also be required to provide collateral to make the personal loan a secured loan, which can include an asset such as your car. This means that you will be at risk of losing your security if you are not able to pay off your loan in the end.

People with bad credit who are considering a personal loan in the future can take advantage of the present time to start improving your credit score. Some of the steps you can take include paying your credit card bills on time from now on, making more than the minimum payments on your cards, correcting any errors on your credit report and even negotiating with an existing creditor to accept a partial payment.

These steps are not easy and can take some time and persistence. But in the end, they can make a huge difference in improving your financial future and the possibility of you getting a personal loan on favorable terms.

Find out if you qualify for a personal loan at LendingTree even if you have bad credit.

Applying for a personal loan really depends on your situation. If you plan to use a personal loan on a non-core account – such as a lavish holiday or a large birthday party – we strongly recommend that you do not accept it. After all, personal loans are expensive financing options, and you will end up paying a lot of extra money for an unnecessary reason.

But if you want to consolidate your existing debt and can get a lower interest rate on a personal loan than what you are currently paying with your credit card, it is worth looking at. You should also consider other options such as a balance transfer credit card or refinancing your mortgage if you are a homeowner, both of which can offer lower interest rates or better terms than a personal loan.

Ultimately, personal loans are another tool in your financial toolbox. Given the current economic climate, getting cash now may be as expensive as a personal loan. So do your homework by knowing what to look for in a personal loan, and find the best offer for you.

Learn more about personal loans at LendingTree and get offers from many lenders.

Get the latest personal finance deals, news, and tips at CNN Underscored Money.

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