How To Get The Best Personal Loan
If you’ve never used a personal loan or it’s been a while, you’re in for a surprise: Today’s personal loans are not the one-size-fits-all options of the past. Now, you can get a personal loan to fit just about any financial need or situation.
Whether you need to get a last-minute loan for a medical emergency or you want to get a loan to pay for your wedding day, there’s an option for you.
Here are some things to consider when searching for the best personal loans for any situation:
What Qualifies As A Personal Loan?
Getting a personal loan means borrowing money from financial institution, like a credit union, bank, or online lender, and paying it back in set monthly payments over a set period of time, usually between two to five years. Some reasons for taking out a personal loan include:
- College tuition and/or books
- Auto repairs
- A wedding reception
- Medical expenses
- Moving back home after college
- Travel abroad
- Financial assistance for unexpected life expenses
- Baby expenses
If you’re taking out a personal loan, you most likely need cash fast and for a specific purpose. That means you probably don’t have collateral to back your loan…
Don’t worry, you’re not alone: About 19 million people have personal loans in the US*. In general, you’ll find your best options if you have a reputable credit history and a favorable debt-to-income ratio. But, what else can you do to find the best personal loan for you?
Improve Your Personal Loan Options
If you have the time to make improvements in your financial standing, here are some ways you can get the best terms for your personal loan:
Check & Improve Your Credit Score
Where do you check your credit report and score? Equifax, Experian, and TransUnion all provide free and secure credit reports detailing your full credit history. Request your free report at Annual Credit Report.com. Pull at least one credit report from one of these agencies to review your personal financial history before applying for a loan.
To get the best rate on a personal loan, you’ll want your credit score to be as high as possible. To see where you stand, you can purchase your FICO score from any of the three credit bureaus. Anything between 500 and 600 will give you a good chance of getting a loan. You’ll want to aim higher to get the best rates possible, though.
Between 500 and 600, your interest rate will usually land somewhere between 14 and 25 percent, which is higher than most people want to pay over the course of a loan repayment plan.
Keep in mind, with a personal loan you don’t have collateral to back or secure your loan. Therefore, you’re paying more in interest because a low credit score is a reflection of your debt risk. To achieve optimal success when getting a personal loan with the lowest interest rate, get that credit score as high as possible!
Find Out Your Debt-to-Income Ratio
Another incredibly important factor is your debt-to-income ratio. The less debt you have per dollar of income, the more reliable you appear as a borrower. There are two simple ways to improve debt-to-income ratio, which you may be able guess:
1. Decrease debt
One way to tackle an unfavorable debt-to-income ratio is to pay down your debt. Paying a little extra toward credit cards or student loans can go a long way. Try creating a budget that keeps your living costs low enough to allow extra money to go toward debt. When you put your mind to it, there are many ways to chip away at debt.
2. Increase income
The other way to improve this factor is to increase the amount of money you bring in. There a plenty of ways to increase your income–whether it’s aiming for a raise at work, getting a part-time job, or starting a side hustle. Increasing your income will help your debt-to-income ratio (BONUS BENEFIT: having extra income means you have more to pay directly toward your debt so you can accelerate your path toward loan-worthy debt and income.
Determine Your Affordability for Personal Loans
Next, consider how much you can truly afford. When it comes to personal loans you are limited in the time frame you have to pay back the loan. It’s smart to perform a personal debt history audit of your debts and income. Determine whether you can carry this amount of debt over the course of the loan.
For example, if you have a 60-month loan, you will need to determine where your finances will be for the next five years. While you need money fast, you also want to be smart about making sure this debt does not lead to even more debt in the future.
Choose the Most Affordable Personal Loan
How do you know what to do when choosing from personal loan options? It’s often best to start with the lowest annual percentage rate (APR)–that’s the amount of interest you’re paying along with finance charges.
Other considerations when getting a personal loan from a lender is whether or not you already have other financial products with that lender. For instance, when you opt for a local credit union for your personal loan, you can manage your other banking needs, too.
Find Your Best Personal Loan Today
At OUCU, we offer personal signature loans, share secured loans, and CU Cash Now™ loans. These personal loans even include government shutdown assistance for individuals struggling due to federal agency issues.
*According to www.lendingtree.com/personal/personal-loans-statistics/
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