Best personal loans for 2021
A guide to choosing the best personal loans
A personal loan can help you ease financial hardship, cover the expenses of a major purchase, or simply complete a costly planned or unforeseen event. If used and repaid in a timely and correct manner, personal loans can be of great benefit in achieving a specific financial goal.
As we reveal in the personal loan reviews on this site, interest rates can drop as low as 6%, making these loans the cheapest financial solution for many borrowers. Many aspects of loans are regulated by law, so lenders often differentiate themselves by competing with each other on features such as low fees, flexible credit calls, and quick availability of funds.
With each loan, you pay back the amount you borrow – the principal – as well as an interest amount defined by the interest rate. The interest rate and the annual percentage rate are not the same thing. In addition to interest, the APR includes all fees and other costs associated with the loan, expressed as a percentage of the amount borrowed. If you want to compare the actual costs associated with potential loans, compare the APRs.
Reasons to get a personal loan
The best company for a personal loan might be the one that doesn’t ask a lot of questions about why you need to borrow money. While you’re allowed to take out a personal loan for almost any reason – or for no specific reason – borrowers typically take out loans when they need money for a specific reason, like major purchases or renovations. If you can claim financing, a personal loan might be the best solution to cover the costs of your project.
Here are some of the most common reasons people take out personal loans:
Unlike credit cards, which may be suitable for small expenses that you can pay off each month, personal loans are better suited to spread spending on larger purchases or projects over several years. The best personal loans usually come with fixed interest and monthly payments that save you money compared to paying with a credit card.
All in all, taking out a personal loan can be a smart move when it comes to the cheapest type of financing, when it can improve your overall financial situation, and when payments aren’t stretching your budget too much.
On the other hand, getting a personal loan to pay for a tropical vacation or an extravagant shopping spree can be unnecessarily expensive. If you need money for an emergency or medical expenses, you can find alternative funding sources such as community aid or provider payment plans a better alternative.
Types of personal loans
This introduction to personal loan reviews focuses on unsecured fixed repayment loans, which are quite common. Many of the lenders we cover offer additional types of loans: personal lines of credit, secured loans, mortgages, variable rate loans, and more. To determine what type of financing is best for you, we suggest that you assess your overall financial situation taking into account factors such as the purpose of the loan, your credit rating, and the time you need for repayment.
Here is an overview of the most common options.
Unsecured personal loans
Let’s start with the unsecured personal loan. “Unsecured” means that there is no collateral to provide security to the lender. This means that the lender is taking a greater risk, and therefore you can expect a higher interest rate than what you would pay with a secured loan. You may need a higher credit score to qualify.
An unsecured personal loan is a type of installment loan, which means that it is paid off in a series of regular installments, or installments.
Overall, this financing solution can be a good option if you have a good credit rating, don’t mind an interest rate of 5-36%, and prefer a regular monthly repayment schedule.
Guaranteed personal loans
A secured personal loan is an installment loan backed by collateral. A loan company can take your house, land, vehicle, or other valuable asset as collateral. If you default on your personal loan, the lender will resort to foreclosure of your collateral to cover the remaining loan balance. Since the risk to the lender is not that high with this type of financing, it is much easier to qualify for larger loan amounts and you will be offered lower rates and fees compared to a loan. not guaranteed. The most common examples of secured financing are auto loans (secured by your vehicle) and mortgages (secured by your real estate).
Fixed Rate Loans
With fixed rate personal loans, you can have peace of mind knowing that your interest rate and monthly payments will not change during the life of the loan. If you are concerned about rising rates on long-term loans and want consistent monthly payments, you should consider a fixed rate personal loan. The only downside to this financing solution – even with the best personal loan companies – is that you won’t benefit if the rates go down.
Variable Rate Loans
Unlike fixed rate financing, variable rate loans come with interest rates that can fluctuate depending on the health of the national economy. Rates cannot go up and down without a limit, as there is usually a cap on their variation over a period of time. Variable rate loans tend to have lower interest rates and APRs than personal loans compared to fixed rate options. Applying for a variable rate loan makes sense if you opt for a short repayment term. While rates may increase, they are unlikely to increase.
Debt Consolidation Loans
A debt consolidation loan consolidates multiple debts into one new loan. These loans can save you a lot of money if you pay off high interest credit card debt and other bills with a low interest rate alternative. Borrowers use this type of financing to pay off medical bills, payday loans, credit card bills, loans from friends and family, and other debts. Combining all of your debt into one affordable monthly payment can help lower your total monthly costs and potentially spread the repayment over a longer period of time. Offered by some of the best personal loan lenders, this financing solution can be a good choice as long as it offers a lower APR than your existing loans.
You should consider applying for a joint or co-signed personal loan if you have a poor credit history and cannot qualify on your own. The second borrower will share the responsibility for repaying the loan and act as insurance for the lender. Adding a co-signer who has an excellent credit rating can improve your chances of qualifying for affordable rates and favorable terms on personal loans.
Personal lines of credit
Because it works like revolving credit, a personal line of credit is more like a credit card than a loan. With this type of financing, you have access to a line of credit that you can withdraw multiple times, whenever you need money. You only pay interest on the outstanding balance – the amount you’ve borrowed and haven’t yet paid off. A line of credit may be the best type of personal loan to cover current and emergency expenses.
Payday loans are short-term unsecured loans with high interest rates and high APRs. Loans are limited to a few hundred dollars and repayment is due in full on the borrower’s next payday. Unless you are absolutely certain that you do not need to take out additional loans to pay off the first one, we suggest that you explore other options.
How to qualify for a personal loan
Once you have decided on the type of loan you want, take the time to compare the rates and fees of lenders. Be sure to read all the fine print to find out if you are eligible for discounts or if anything in your history could disqualify you.
The many personal loan reviews that we have done show that no two loan providers weigh the credit and non-credit factors of a potential borrower equally. While lenders have the final say on eligibility, there are steps you can take to strengthen your credit profile and increase your chances of qualifying for a loan.
Here is an overview of the factors that lenders can take into account when assessing your eligibility for a loan.
With some lenders, you can get approved for a personal loan with a credit score as low as 500. However, there’s a good chance you won’t qualify without collateral – and even in the best-case scenario, you’ll pay a lot more. expensive personal loan rate.
For Americans, FICO is the standard credit scoring model. According to this model, a consumer’s personal credit score is calculated using a few different financial data such as length of credit history, amounts owed, repayment history, credit composition ( different types of credit) and new credit (recent credit information) requests).
When deciding whether or not to fund your application, many lenders go beyond checking your credit score and take additional factors into consideration. Lenders can assess your age, location, job, citizenship status, education, and assets.
The age threshold may vary from state to state. However, a potential borrower applying for a personal loan in the United States must be at least 18 years old to be eligible.
Since not all loan providers offer their services nationwide, you need to make sure that the lender you choose is operating in your state of residence.
Depending on the lender’s policy, you may be required to prove that your income is stable by providing bank statements and employment information.
Most US lenders require loan applicants to be citizens or permanent residents of the United States.
If you are considering applying for an education loan, remember that you will need to meet the minimum education standards imposed by the lender.
Finally, keep in mind that personal loan companies may also take your liquid and illiquid assets into account when assessing your application. Cash is cash and other assets that can be quickly sold and converted to cash – mutual funds or treasury bills, for example. Illiquid assets include real estate, heavy machinery, and other assets that may take longer to convert to cash.