It is essential to understand what a personal loan bank can offer before deciding on taking a loan. More than 27 million Americans have taken a personal loan for unexpected expenses. Debt consolidation, medical bills, and credit card debt can necessitate the need for additional funds. Household expenses such as home improvements, major life events, vacations, and luxury purchases are also reasons to seek out personal loan funding.
How to Choose a Personal Loan Bank
When looking for a personal loan bank, it is important to find a reputable financial institution. Many online lending resources have exorbitant fees, high-interest rates, and poor customer service. Dealing with a personal loan bank that is well-known in the industry, will provide you with a better overall lending experience. Before choosing a lender, check with the Consumer Financial Protection Bureau to be certain that the personal loan bank is legitimate.
Understand the Terms of the Loan
A personal loan is an installment loan that must be paid back every month, with interest.
- INTEREST RATES: Accredited personal loan banks will offer varying interest rates, dependent upon credit. These rates can range from 3% to as high as 36%. Credit scores are a large part of determining the rate, the higher the score the lower the rate.
- ORIGINATION FEES: These fees are variable, so be sure to know what is being charged before agreeing to take the loan. Personal loan banks tend to charge 2% to 3% of the loan amount. Some lenders are charging as much as 5%. Read the fine print before agreeing to any type of personal loan.
- LOAN TERMS: Most personal loan banks will lend money for a limited time, up to 7 years. The average length for personal loan repayment is 3-5 years. The longer the loan period, the more interest you will pay.
- PREPAYMENT PENALTIES: Some personal loan banks also have prepayment penalties if a loan is paid off before the agreed-upon date. Choosing a lender that does not have this clause will allow you to pay off the loan at any time, without accruing additional charges.
Secured vs. Unsecured Loans
A secured personal loan requires collateral, such as a savings account, to obtain the loan. This assures the lender that if payment is not made on the loan, the bank can seize that asset. An unsecured loan does not require collateral but may have a higher interest rate. Unsecured loans are harder to obtain with a low credit score. If credit is not a problem, then an unsecured loan is the better way to go, to avoid putting your property at risk.
How to Obtain a Personal Loan
The following major banks offer personal loans to consumers with good credit:
- Wells Fargo
- US Bank
- Citizens Bank
Credit Unions are also a great place to seek a personal loan. They typically offer lower rates than a major consumer bank and have personalized customer service. Finance companies and online lenders are other options to consider when seeking financial assistance. Exploring these options before committing to a personal loan bank, will help you make a better educated decision when it comes to your finances.
Credit Approval Process
Personal loan banks will pull a credit report to determine the consumer’s credit score and overall trustworthiness in repaying the loan. The interest rate being charged on the personal loan will be dependent upon this score, so be sure that your credit report is accurate and free of all potential errors before applying for the loan. A personal loan bank will typically take 1 to 2 days to provide an acceptance offer. Some banks offer an immediate response. Minimal documentation is needed when securing a personal loan. Usually, the only thing asked for is income verification such as a pay stub or tax return. Fast turnaround time in the loan approval process simplifies the lending experience.
Credit Score Impact
A soft inquiry does not affect your credit score. This occurs when a bank that you are currently doing business with pulls a credit score to determine your eligibility. When you decide upon which personal loan bank you are going to work with, that personal loan bank will pull a credit report as part of the loan approval process. This is considered a hard inquiry and will become part of your credit history for approximately two years. Do not apply to several banks at one time, as this will pull down your credit score by several points. Decide on what personal loan bank appeals to you, before applying.
- A personal loan is not the only way to obtain additional funds. With good credit, it is possible to obtain a balance transfer credit card. A lot of credit card companies offer a 0% introductory APR for a limited amount of time. This, however, can be risky if you can’t pay off the balance before the rate expires. The APR typically jumps to a high rate, causing excessive unexpected interest charges.
- Home Equity Loans or Lines of Credit can be used to secure a loan that is needed for a higher amount. Rates are typically lower for these types of loans, however, your home must be used as collateral. If the loan goes into default, the lender has the right to foreclose on your property. Careful consideration should be exercised when looking into this type of loan.
Establishing a Relationship with a Personal Loan Bank
You are the only one that knows the intricacies of your financial situation. It is important to know what is involved in securing a personal loan before proceeding with the lending process. Working with a reputable personal loan bank that you trust will ease your mind and assure you that you made the best decision for meeting the financial needs of you and your family.