Let’s say you need a personal loan to fund an upcoming honeymoon, apartment renovation, minor surgery not covered by your insurance, etc. There are a wide variety of options available to you online. Here are some of the easiest routes, plus one route to avoid altogether:
0% Intro APR credit cards: For the individual who needs money in a relatively short amount of time, and wants a minimum amount of work to get it, the introductory rate credit card can make a lot of sense. Click here to see Outlaw‘s top-rated 0% introductory rate card offers. Many of the cards featured in our deals ranking system provide a decision on your application within 60 seconds in most cases, which makes the process of getting money very simple. Treat your new card as a “personal loan funnel,” but make sure to pay off the WHOLE balance before your introductory rate expires, otherwise you could end up paying a relatively high interest rate. I don’t like to give banks my hard-earned money, so I avoid interest charges whenever possible.
Peer-to-peer lending sites: This is another popular option for obtaining a personal loan online. The process is typically a bit more involved than applying for a credit card; you’ll submit a similar amount of information, but then the lending site’s credit department will likely contact you during the week for supporting documents — this doesn’t always happen, but when I tried one of these sites for review purposes, they contacted me. Before listing your loan in their community and allowing their vast pool of users to contribute to your loan request, they want to make absolutely sure that your identity is verified, that you earn as much as you claim to, and that your credit history is free of defaults and other derogatory marks. (You can sometimes get a loan on a peer-to-peer lending site even with bad credit, by the way, but you’ll definitely pay for the privilege: interest rates for borrowers with “average” or subpar credit scores can be quite high on these sites.)
Bank-to-person personal loans: Many of the nation’s largest banks now offer a simplified process for applying for a personal loan right through their web site, instead of applying at a branch. As with a peer-to-peer lender, the bank will typically review your credit history and credit score — and seek to verify your income — before approving you. Unlike a 0% introductory rate card offer, you will be charged an interest rate, typically starting on day one of the loan. The interest rate will vary based on your level of creditworthiness, and repayment of the loan is typically done via monthly direct debit from one of your checking accounts on a pre-agreed to repayment schedule. I consider this a “so-so” option for those seeking personal loans. If you have great credit, I believe using an introductory rate card or going with a big peer-to-peer lending network may be a less expensive option. But an online personal loan from a large bank is a solid option for those with decent to very good credit. Additionally, excellent online account management features and rapid transfer of the borrowed funds into your designated checking account make this option more attractive.
“Rapid loans” and payday loans: These are the ones to avoid, folks. These personal loans typically come from companies you’ve never heard of. They have in-your-face marketing styles and one of their core selling points is that you can get money very quickly, even with a flawed credit history. The interest rates for these kinds of online loans is often VERY high. I simply don’t recommend going this route, ever. Of course, if you truly are hard up for money and need a loan to keep your power on or something — and you lack the positive credit history to secure a competitive loan from a reputable bank or card company — this might appear to be your only option.
Before boxing yourself into an AWFUL loan repayment agreement that might exact a “pound of flesh,” so to speak, consider seeking the most truly personal kind of personal loan: ask for money from a friend, co-worker, or family member. Offer clear repayment terms (example: full repayment within 12 months, at 6% interest) and let your friend or family member know this is a LOAN, not a gift or a request for a hand-out. Offer to sign a contract laying out the repayment terms.
Going with an old-school personal loan, rather than an impersonal “payday loan” company, could save you thousands of dollars in interest charges and fees.
David blogs about personal finance and bank deals at Credit Card Outlaw.
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