Much like with anything else that’s financial in nature, borrowing money works out the best when you’ve planned just how to do it. Here are a few questions to reflect upon before taking out any kind of loan: Do you really need that loan, and what is it for? What kind of loan are you getting? How are you paying it back? It seems to me that many people take on loans without really thinking hard about the consequences, and that’s when they get into financial trouble.
For the sake of discussion, let’s go over the various ways you can get an unsecured personal loan. The thing is, the better your credit, the lower your personal loan rates are going to be. Your loans will be cheaper if you are considered a prime borrower or someone with good credit. That’s something a lot of people seem to forget.
Where and How To Get A Personal Loan
1. A Peer To Peer Lending Network
I’ve been surprised that not more people have taken a look at peer to peer lending (or social lending) as a way to get a loan. Then again, it could be that it’s just tougher to qualify as a borrower at a place like Lending Club, which has the following requirements for borrowers who want to join their lending network:
- You have to be a U.S. resident.
- You need a FICO score of at least 660.
- Your debt to income ration (minus your mortgage) should be under 25%.
If you manage to make it in the network, you could potentially get better rates here than through many other sources, and the debt management process also promises to be easier to deal with.
Pros: Good rates
Cons: Need good credit, strict requirements for borrowers
2. Credit Cards
I think that the most common way to get quick cash is through a credit card. But it’s just too easy and too convenient to use the plastic. It’s easy to forget that when you whip out your card, you’re really entering into a loan agreement with a merchant. That’s your cash you’re using, plus extra (tag on the interest rate). If you can’t trust yourself with credit cards, then it’s best to toss them away.
Pros: Easy money (easiest loan to get?)
Cons: Easy money leading into a debt cycle
For those interested in a debt consolidation strategy that uses credit cards, you can review this list of top balance transfer credit cards with no annual fees (unless specified). One or more of these cards may be suitable for your needs.
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3. Your Bank, Credit Union or Other Financial Institution
Then there’s your trusty bank. If you’ve got a good relationship with your banker, then it may be worth exploring the possibility of getting some liquidity through them. Here are a few things to decide upon when you go this route: should you go fixed rate or variable rate (I’d go fixed!)? What are the loan fees? Are there ways to lower your interest rate (by offering collateral for instance)? There’s more work involved when you go through your bank, since you’ll have paperwork to do and due diligence done on your credit history, income and whatever else, before you’re able to secure your loan.
Pros: A relationship with your bank can get you good personal loan rates
Cons: Tougher requirements for getting loans
4. Your Family and Friends
If you’ve got strong relationships with family and friends, they of course, may be able to help you out financially. But such financial arrangements, in my mind, are fraught with issues: I’ve seen many relationships go sour because of money, so much so that I caution anyone who’s considering lending to family or friends to treat such agreements formally, as you would any business deal or contract. Do that or just consider the loan a gift, so that if your borrower decides to pay you back, you can be pleasantly surprised and think of it as an unexpected windfall.
Pros: Great loan terms from people you know
Cons: Can be a risk to your relationship
5. Payday Lenders?
What about those lenders that promise you fast cash even if you have bad or no credit? Places like these will offer you easy, same day loans with no credit checks. Well of course there’s a catch — a huge one! They’re the most expensive loans you’ll ever come across, with stratospheric rates that can border on usury. But that’s the price you’ll pay for convenience and possibly for having problems with your credit standing — it’s simply much harder to get access to credit when you’re a credit risk. Watch out for predatory lenders but if you’re still bent on getting quick cash, do it with your eyes wide open.
Pros: Quick cash, easy money, no credit check required
Cons: Very expensive terms, exorbitant interest rates, possible predatory conditions involved
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{ 22 comments… read them below or add one }
Pawn shops can also be a decent alternative to payday loans. They should be a better alternative than payday loans but it depends a bit on the regulations governing them. Its generally short term loans and they require collateral. Interest is much higher than banks but probably not nearly as high as payday loans.
My girlfriend and I recently got into a situation where we had to take out a personal loan due to getting a tad over extended (not properly reading our lease for moving out at end of lease and a landlord who is very…not nice) and job situations with the state we live in. We took it out with the credit union thats 5mins from our house and who I have my car loan through and it was an extremely pain free process. We probably could have gotten a slightly lower interest rate (its around 9%) but considering we’re both young, I have poor credit while she has great credit but we both have large amounts of student loans it wasnt a bad rate but with more time we could have shopped around more (another credit union was offering 6% or lower but they’re extremely picky as to who they lend to). The banks around here were all over 10%
The hardest decision for us was for how long to take the loan out for. We knew we could easily pay the loan off within two years but most banks/CU wanted a 3yr loan. We ended up going with 4yrs but planned to have it paid off in 1.5yrs or less (job situation will keep us from doing it earlier) and there’s no prepayment penalty so there’s no real harm done.
Not sure if it still applies but getting a credit card was easier than a loan for some reason. With online instant approval being offered by many providers, I would consider the options. Also you can clear the debt when you want, whereas with a loan or mortgage, you have to request a settlement fee and that is quite a bit higher than what you initially borrowed.
well another way to get a personal loan is using your car title or other vehicle titles i had this motor home that just sat out in a empty lot and i used its title and got some pretty good money fast i mean like its a good way to get money if you have a vehicle that just gathers dust you know what im saying?? just another way to get money if you need it
We’ve been using cashloancity for a while now for a personal loan. We usually don’t borrow more than $500 but I think you can get more. The interest isn’t bad there for one of these types of loans and we normally get ours the same day.
Over the years I have established horrible credit after getting laid off at work. I wanted to start my own business so I could start making some money again. My problem was I couldn’t get any loans approved because of my credit history. It’s tougher to find a good loan with my bad credit so I need to make sure I study my options carefully.
I really think that for people with good credit, social lending is the way to go. No bank involvement, and you can still get good rates… it’s a win win in my mind. I am actually a fan of Prosper over Lending Club but I have heard good things about others as well.
I actually agree: I like prosper over lending club as well for personal loans but also as an investor.
Why do you need to get loans? Just save the money and pay for things in cash. I pay cash on everything.
There are certain big ticket items that may not be entirely payable in cash, such as a house in California, for example. But quick loans are also not going to get you there either, if you’re after a mortgage. But I’m simply citing this example to prove that an all-cash existence may not be feasible in some cases.
Also, if loan rates are down, then it may make complete sense to borrow money. Your money can get better use elsewhere if you’re wise about making use of loans. Ever heard of “credit card arbitrage”? 😉
My credit score is above average, though I have $19,000 in debt to credit card companies and make $50,000 a year, for some reason (maybe a $1,200 dollar a month payment for my home mortgage and my house going down 20% in value since i bought it — seems to make me out to be a risk?
I drive old cars worth nothing to any bank (i have asked- they don’t want ’em) lol. If i could just get out of this hole i dug when i was making mass overtime and paying it — any help would be appreciable.
I have cut up the cards : but still owe a total of about 19,000…… It could be paid in 2 years or, at there rate 30 years.
Should I sell my house, and live in an apartment? And take care of business…or keep my pride? and be a greedy american, (who in no way can let go of his pride?)
help!
I recently got a personal loan very easily on good terms via the following link on LendingClub.com. My understanding is that if you don’t need a loan and would instead like to become an investor lender, the company will give you $25 to help get you started as long as you use this link.
The approval process was very easy and I like that you know the rate you will receive on your loan if enough investors fund it instead of waiting for a reverse auction like prosper.com where you don’t know your final rate until the ebay-style auction ends. I much prefer LendingClub’s business model.
Ed: There are many Lending Club promotions available and we are showcasing the $25 investor promo because it is a long term promo and not one that will expire.
SVB, great break-down. You’re pros and cons list is exactly what your readers need. I especially appreciate your warning regarding predatory lending. There are payday shops (online and brick and mortar) that make their money off of sending people into a downward debt cycle, but I think recent state regulations are doing a better job at curbing the payday loan preying, while at the same time supporting an industry that fills an economic void.
I never realized that if you have good credit, your loans will be cheaper, I just thought that having a good credit will just help you get a loan. I think of all the options listed above, payday lenders may be the tricky one. They are easy to get which makes them so tempting, and a lot of people would rather just get the money and then worry about the payment later, until boom! they wake up and realize they are in deep trouble.
This is really surprising that not more citizens have taken a look at social lending as a way to get loans. Again, it could be tougher to qualify as a borrower at a place like Lending Club.
Ya there are some ways to lower the interest rate by collateral. More work is involved when you go through your bank, because of the paperwork to do and due diligence done on your credit, income and whatever else, after you’re able to secure your amount. How about one day loans?
Bank loans are getting too expensive nowadays. I prefer a peer to peer lending club like that found at Lending Club. I have been a Lending Club borrower for sometime and now that my loan is paid in full I have converted over to lending my money along with a group of coworkers, friends, and families. We have managed to collaborate to create a lending group in order to fund each others loan requests in a shorter period of time. You can always go in it alone, but it works much smoother when you have people already waiting to help you fund your loan request. The rates are better than that found on credit cards when you plan to pay it within the 3-5 year plan.
Thank you for posting this.
Personal loans can be a good option, but only if you have a good credit score. Otherwise the rates can be even higher than with credit cards!
Great information and a few things I never thought about!
I NEEDED ONLY $5000 AND was denied by 2 social clubs because my credit score is only 620. I need the funds for business and cannot get it. What can you suggest?
Today there are more options for people who need money. However, before even think about getting a loan, you must ask yourself if you really need the money. It is very easy to get lured into getting a loan because of its availability today. Remember that loans are only for emergency needs. A sale in your favorite mall is not enough reason to get a loan. You should also exhaust all other means of getting the money you need before you even consider getting a loan. If there is no other way to get the money but through a loan, you should check your credit score. A good credit score means you can get lower interest rates. Get a copy of your credit score and check for errors. If there are errors have them corrected and do everything you can to bring your score higher before you apply.
Check the latest personal loan promotions here: Prosper’s promotions and Lending Club’s special deals for borrowers, if there are any. We update these pages regularly whenever a new promotion is supplied. But note that these offers don’t last long (although as mentioned, they have specific periods when lenders bring them back).