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Personal loans in nature are small, short term loans taken to address a financial emergency or in special cases to consolidate debts and improve your credit profile. This is different from standard loans because borrowed amounts are lower compared to standard loans and payment terms are shorter (housing, car, business loans).
Type of Lending Service
We’ve divided lender types into three major categories, direct lenders, peer-to-peer lenders and loan matching services. We recommend working with direct personal loan services. These companies provide the largest available loans with long payment terms. Loan matching services on the other makes it easy for personal loan borrowers to get numerous offers from different lending services albeit loans are smaller and payment terms shorter.
Direct lending services
These personal loan companies are directly involved with approving and funding your fund requests. This means that you are communicating directly with the lender. Rather than submitting a loan application and sending it out to hundreds of lenders your request is handled by a single company from the start. This means:
- Minimal or no credit inquiries (soft-pull on your credit score)
- Easy to understand terms and policies, you’re only working with one company
- Unable to negotiate interest rates since this is determined by a single lender
- Ideal for those with good or better credit ratings
- Have higher maximum loan limits
- Longer loan terms (5 years)
Peer-to-peer lending
This personal loan service works two ways. The company offers personal loans while giving investors the option of funding loans for a profit.
- Borrowers with good credit ratings have a better chance of being approved
- Higher loan maximum limits
- Loan terms (3 years)
- Multiple credit inquiries
- Choose from multiple lenders
Loan matching services
This type of personal loan service makes it easy for borrowers to connect with hundreds of lenders nationwide.
- Available for borrowers with bad or poor credit ratings
- Multiple queries into credit score which could affect your credit score
- Borrowers with steady source of income (employment, paycheck) regardless of credit profile
- Smaller loan amounts
- Short term loans (months)
- Choose from multiple lenders
Credit inquiries and your credit score
Your credit profile or credit score has the biggest influence on your interest rates. This is because lenders consider borrowers with poor credit ratings as high risks. Submitting an application through a loan matching service would result to multiple inquiries into your credit and this could have a negative impact on your credit profile.
Unsecured loans
This generally refers to loans that do not require collateral but expect higher interest rates compared to traditional loans that require collateral.
Loan Details
Interest rates vary with each lending company and a lot of factors determine exactly how much your loan is going to cost you. Loan matching services are the best in terms of offering you a wide choice of interest rates but still largely dependent on your credit profile.
Maximum loan amounts
If you’re planning to use a personal loan for a medical or any financial emergency then a few thousand dollars simply won’t do. A personal loan service should have sufficient loan ceilings to meet your needs.
Maximum payment terms
Unlike car or home loans which requires a lot of financial planning, personal loans are often not planned. This could be taken in response to a financial emergency so a longer payment period is ideal to help you cope with unexpected payments.
Application
This refers to user experience when applying for a loan online. Generally, filling out forms is pretty simple with two or three windows to complete the application.
Qualification
Personal borrowers should be at least 18 years old, US citizen or permanent resident. They should also be employed with a verifiable employment history. For small, short term personal loans, credit checks are less stringent only that borrowers should prove a steady source of income.
Information submitted
- Social Security Number
- Active bank/ checking account that could accept fund transfers
- Government ID (driver’s license, etc.)
- Email address
- Phone number
- Employment history
- History of residency
Being approved for a small, short term personal loans is fairly easy. But just like using your credit card, decisions should be based on sound financial discipline. Personal loans should not be taken to purchase a car or a new appliance just because it is easy. If left unchecked, personal loans just like credit card debt could be a quick way into your financial demise.
