If you want to purchase a new car, finance a home improvement project, pay for a honeymoon or consolidate debt, a personal loan might be right for you. This type of loan application process is often quick and easy compared with applying for a home mortgage or a more complex loan. Many factors play into the amount a bank or credit union will give you for a personal loan, including your FICO score, credit history, bill payment history and debt-to-income ratio.
Here are some general guidelines for borrowers and tips to find the right personal loan for your own situation:
What Is a Personal Loan?
A personal loan is a common financing choice for consumers who need some extra cash. This loan product offers a structured repayment period, a fixed rate and fixed monthly payments. The amount of money a lender will give you and the interest rate are based in part on your FICO score.
FICO credit scores range from 300 to 850. A higher score might help you qualify for lower rates, better terms and more choices when it comes to borrowing money — and those can help you financially in both the long and short term. Your rates will typically vary from lender to lender, so it can be beneficial to shop around.
Related: How to Get a Loan
Best Personal Loan Options for Poor Credit
Having a credit score of 579 and lower is considered poor credit. Lenders view your poor credit score as a sign that you’re a high-risk borrower who’s less likely to keep up with payments and repay the loan. Rates tend to be higher on personal loans for borrowers with scores below 668.
If you think you can’t get a loan with bad credit, think again. It’s not impossible, but you’ll have fewer options and higher costs. A secured personal loan might be an option if you have poor credit. With a secured loan, you provide collateral — such as a car title or your savings account — to guarantee the loan. Having collateral lowers the lender’s risk and makes it easier for you to get personal loans if you have bad credit.
Personal Loan Options for Average Credit
A FICO score in the 670 to 739 range indicates good or average credit, according to Experian. This score should enable you to get approved for an unsecured personal loan. Unsecured loans are typically structured as installment loans with a fixed repayment period and often come with a fixed interest rate.
Online lending platforms such as Prosper or Lending Club offer peer-to-peer lending — also known as P2P lending — which enables you to borrow money from other individuals instead of an institutional lender.
Best Personal Loans for Exceptional Credit
A credit score higher than 800 indicates an exceptional FICO score that’s well above the average score. With a high FICO score like this, the borrowing world is more attracted to you, and you’ll have the best personal loan options.
Your bank or credit union most likely sends you special low-interest personal loan offers for loans that include low-interest rates with higher loan amounts. As with any loan, you should consider shopping around for the best offer. You’re likely to experience a quick and easy approval process when you apply for loans and new credit, and you should be able to get an unsecured personal loan.
What You Should Know About Personal Loans Before Talking to Lenders
Finding answers to frequently asked questions about personal loans can equip you to shop smarter and negotiate for better loan terms. Know your financial information and what various lenders offer so that you are in a position to have them to compete for your business rather than you feeling like you’re competing for theirs.
What Is the Average Interest Rate on a Personal Loan?
As you shop around for the best personal loans for you, it is important to consider personal loan interest rates as your loan rate will impact the total amount of money you pay back on the borrowed amount. Personal loan interest rates vary based on many factors and can range anywhere from 7.99 percent APR to 17.99 percent APR or more, depending on the lender.
How Much Can You Get for a Personal Loan?
The amount of a personal loan ranges from about $1,000 to $50,000, although some borrowers with excellent credit can borrow as much as $100,000 with a Wells Fargo personal loan, for example. Regardless of the amount of money you need to borrow, you will need to know your credit score when you apply, which you can check with what is known as a soft credit check.
Plan Ahead: How to Get the Maximum Personal Loan Amount
How Does a Personal Loan From the Bank Work?
The application process for personal loans will vary by lender, so it’s important to understand the requirements for the loan you are applying for. For example, you need to talk to a personal loan banker to apply for any type of Capital One personal loan. For other lenders, applying for a personal loan can be as easy as logging onto the website to fill out an online application.
Several online lenders can supply loan money fairly quickly. You’ll have a set monthly amount that you will pay each month that includes the interest and fees, similar to how a personal loan from a traditional bank or credit union works.
Which Banks Offer Personal Loans?
Almost all banks and credit unions offer personal loans. Look at real-time personal loan comparisons by reviewing interest rates, total monthly payment amounts and length of terms. If you have poor credit, such as a FICO score below 579, a local community bank might offer more attractive loan terms to appeal to borrowers who already bank with them, for example.
If you’re shopping for a personal loan and have an average FICO score ranging from 670 to 739, a credit union should be on your short list of places to check. Credit unions typically have more relaxed credit requirements and tend to offer better personal loan rates due to their nonprofit structures. Borrowers with an exceptional FICO score above 800 most likely can get a personal loan from any bank or credit union.
Next Up: What Is a Good Credit Score?