How and Where to Get a Personal Loan

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Personal loans can be a useful tool to help you get your finances back on track. When you’re swimming in high-interest credit card debt, for instance, consolidating those balances into one personal loan can help you make faster progress paying it down, because the interest rate on a loan might be lower than those you’re paying on your credit cards.

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What’s more, a personal loan can help you increase your credit score by raising your overall credit limit (and thereby lowering your credit utilization rate) — assuming you use it to pay off debts and not rack up new ones.

And, of course, having just one payment to keep track of instead of several can significantly lower your chances of missing a payment — a major no-no when it comes to credit.

Do You Need a Personal Loan?

Before you start wondering where to get a personal loan and how to apply for one, the first thing you need to consider is whether or not you even need a personal loan in the first place.

The main question to ask yourself is whether a personal loan will help you get out of debt faster, or if the difference in payments will help you from taking on more debt.

A personal loan is, in virtually every case, best used as a tool for consolidating your credit card balances into a single monthly payment, lowering your interest rate, and putting yourself on the road toward getting out of debt. Every other reason you might think you need a personal loan is probably better served by just saving your money and paying with cash.

You should always avoid getting super high-interest loans, such as payday loans or car title loans. If you find yourself relying upon these short-term loans, a personal loan (if you’re able to qualify) might be a good way to do a little bit of financial restructuring before you get caught up in the cycle of taking out these kinds of loans again and again.

Pull Your Credit Report

Before making a trip down to your bank for a personal loan, pull your credit report. (You can do this for free once a year through AnnualCreditReport.com.) You need to see what kind of shape your credit is in, and whether you’ll even qualify. If you’re using a personal loan to repair your credit, you might not have the credit score to get approved — and the hard inquiry on your credit that comes with applying for a loan will only ding your score further.

On the other hand, if your credit is good enough, a personal loan might not be the best option. Instead, you might want to consider getting a zero-interest credit card to transfer and consolidate your high-interest balances.

Basically, people with a credit score between about 630 and 720 are the ones who might think about getting a personal loan to consolidate their high-interest debts. If your credit score falls much below that range, you probably won’t qualify for a personal loan — at least, not one without some very high interest rates. If your credit score is much above that threshold, you’re a better candidate for a zero-interest credit card.

Where to Get a Personal Loan: Finding for the Right Lender

When it comes to getting a personal loan, the best place to start is with your own financial institution if your account is in good standing. They’re going to have a lot of your financial records on hand. In fact, you might already be pre-qualified for a personal loan by your bank precisely because they’re already aware of your financial needs and habits.

Once you check with your own financial institution, shop around at two or three other lenders to see if you can’t get more favorable terms. Nonprofit credit unions often have lower interest rates or more forgiving qualification criteria than their for-profit competitors.

In the 21st century, you also have the option of online lenders. Beyond traditional lenders who loan money online, there are also companies called peer-to-peer lenders, where people just like you loan money to others as a form of investment. Prosper and LendingClub are two of the innovators in the American market, as well as the biggest.

Borrowing money through an online lender can often help you get an answer — and the cash you’re looking for — a bit quicker than with a traditional institution. Online lenders are often a little more flexible and creative in their terms as well. So you might be able to get a more flexible payment schedule, or pay no origination fees, or even qualify for a loan without perfect credit. No matter where you go, make sure to shop for more than just an interest rate.

A personal loan can be just what the doctor ordered to get your finances back on track — if you use it wisely and don’t view it as a license to continue spending beyond your means. If you’re having trouble managing your debts, talk to someone at your bank or credit union about a personal loan, or look into some of the online lenders on the market.

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