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Personal Loans

The interest rate depends on the lender's assessment of how risky the loan is

A personal loan is an amount of money that an individual borrows to fund personal expenses.

Many people use these funds to buy homes, finance cars or just pay bills. There are various criteria for borrowers to qualify, including credit scores and whether they put up any collateral.

Lenders use risk-based pricing for the interest rates they charge: risky lending (like credit cards) may have an interest rate of almost 30% while less-risky ones like mortgages can be as low as 5%.

Payback terms may be as short as a matter of months while others can last 10 years.

A Short History

People Have Been Lending for Thousands of Years

People have been lending each other money for thousands of years. There's a lot of literature — including historical, religious, and economic sources — that documents the role of borrowing and lending throughout history.

Here are just a few historical examples:

Ancient Middle East: Money in the form of food like olives, dates, and animals was lent out as early as 5000 BCE and ancient societies like the Mesopotamians, Hittites, Phoenicians, and Egyptians all have written accounts. Interest was generally fixed by the State.

The Bible: The Hebrew Bible regulates interest taking and defines parameters of "ethical lending" (Deuteronomy 23:19, 20)

Athens: Moneylenders funded maritime grain shipments in Ancient Greece through written agreements that used the ships and cargo as collateral.

Different Types of Personal Loans

Popular types include secured, mortgages, car loans, equity lines, student loans, and credit card debts

Secured: A loan is secured when the borrower pledges some asset (e.g. a home or car) to the lender. The lender (usually a bank) uses this asset as collateral to help ensure repayment.

Mortgages: These are used to finance the purchase of a home or apartment. If a borrower defaults on his mortgage payments, the lender can take ownership of the property.

Car: When a borrower takes out a car loan, she pledges the car as collateral backing the amount borrowed.

Home equity lines of credit (HELOCs): In addition to a primary mortgage, people can borrow off the equity in their homes. Instead of receiving a lump sum payment, like people do when they take out a mortgage, these (also known as a HELOC) are actually a line of credit that can be drawn from as needed.

Unsecured: Unsecured loans don't use collateral. Instead, they rely upon the quality of credit of the borrower. Without any pledged assets backing them up, lenders see these as riskier and typically charge higher interest rates than secured.

Installment: Like the loans offered at CreditLoan.com, unsecured installment loans don't require collateral and have a set, periodic repayment schedule. The term may be as short as just a few months or as long as 10 years.

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Student: There are a lot of private and public programs that encourage college education. Specialized lenders offer them to students — many with very long repayment terms — to pay for school.

Credit card debt: Credit cards are issued with a line of credit that credit card holders can pay down every month. Credit cards are one of the easiest but most expensive ways to borrow money — with interest rates as high as 25.99%.

Bank overdrafts: Some bank savings and checking accounts come with overdraft agreements. If you spend more than what's available for withdraw from your account, the bank will lend you the difference, generally at a high interest rate and for a fee (according to CNN Money, the average overdraft fee in 2015 was $35).

How Big is the Debt Market?

The average US consumer is in some form of debt

If you are like the average American, you're probably in debt. Between financing a college education, buying a house, and paying general living expenses, many people find themselves saddled with numerous debts.

The Average Debt of an American

Here's the debt profile of the average American:

  • Average credit card debt: $15,422
  • Average mortgage debt: $149,782
  • Average student loan debt: $34,703

America in Debt

When you look at these numbers across the U.S., the overall size of the country's debt is pretty staggering. In the U.S., there's actually $11.31 trillion in debt. If you break it down, that comes out to:

  • $8.03 trillion in mortgages
  • $956 billion in student loans
  • $858 billion in credit card debt

States With The Most Debt Per Capita

State debt totaled more than $4 trillion during 2011. Connecticut led all states with the most debt per capita — its $99+ billion in debt works out to be something like $5,402 per person. The state with the lowest debt? Nebraska leads the nation in financial responsibility. It has $21 in debt for each of its residents.

Reasons to Borrow

A consumer loan can make sense if you have bad credit, don't want to put up collateral, or need money fast

There are lots of reasons to use a consumer loan like those found through CreditLoan — even if you have bad credit. Here are just a few reasons to apply:

Bad credit score: It's not always possible to qualify for other types of financing. You can borrow with a poor credit score.

No need to put up collateral: Unsecured loans don't require collateral, so you don't need to pledge your car or house to borrow money.

Easy, quick way to consolidate credit debt: Instead of paying astronomical interest rates on your credit card debt, people use these to pay off expensive debt and replace it with less-expensive debt.

Cover medical expenses: Borrowing is a quick way to fund unexpected medical expenses.

Paying tuition: Many people use these to fund part of their education.

Starting a small business: Borrowing can be an effective source of capital to fund small businesses.

What People are Actually Doing

People borrow to pay for education, fund businesses or home improvements, and consolidate debt

Here's How People Use Personal Loans:

  • Consolidate personal debt (49%)
  • Business usage (16%)
  • Home improvement (10%)
  • Education (5%)
  • Car repair (4%)
  • Other reasons (16%)

Source: LendingClub.com

How to Qualify

Proof of income, collateral, co-signers and your own credit score all affect your chances of qualifying

Credit score: Many people have debts that are unsecured — that means you don't need to put up any collateral. All that's backing the amount borrowed is your commitment and goodwill to pay it back. The bank is going to want to see your credit score to see how risky a borrower you are. Lenders also want to see your credit history to see how long you've been paying your bills. You can borrow even with bad credit — lenders will just charge higher interest rates accordingly.

Proof of income: To get comfortable lending you money, a lender may request to see how much money you make. With this information, the bank can determine how likely you are to make your monthly payments. A lender may ask for a few payment stubs or a recent tax filing.

Collateral (optional): Unsecured loans don't require you to pledge any of your assets, but secured ones, like mortgages, do. Common collateral people use to qualify include homes and cars. The bank may resort to taking possession of your assets if you fall into further debt and can't repay the amount.

Co-signers (optional): Lenders sometimes require a person to find a co-signer. Co-signers commit to paying back another person's debt if he fails to do so. It's just a way for a lender to help ensure a debt gets paid back.

After the financial crisis of 2008, many banks stopped aggressively lending unsecured debt. Now, the majority of big banks only lend in this way to their current account holders. At the same time, competition is rising among smaller lenders offering competitive rates.

3 Ways To Get One

You can get approved through an online lending network, through the mail, or even at a local lender branch

There are really three ways to get an offer from a lender:

Special offers through the mail: Many banks send special offers through the mail to attract new customers with favorable rates and terms, according to the Wall Street Journal.

Your branch awaits: At other banks, you'll have to go to your local branch and negotiate your borrowing terms. Some banks will want to meet or talk with you before approving your application.

Lending networks: Websites like CreditLoan.com allow people to fill out a simple form to see if they qualify from numerous financial institutions. You can easily compare rates and terms to make sure you get the best deal for your needs.

Things You Need To Know About Borrowing

When applying, be aware of fixed payments, the amount, the length of the term, and the interest rate

Fixed Payments

Fixed interest rates are the typical way these are structured. That means you'll make pretty much the same monthly payment until the balance is paid-off — no ballooning payments or sliding interest rates.

Length of Term

The term can be as short as a couple months and range as long as five years (60 months). Banks frequently charge lower interest rates for longer terms.

Amount

According to SmartMoney, the average amount is relatively small. Many banks will lend up to $10,000 without requiring any collateral. At banks like Capital One, amounts can go as high as $30,000. One lender, Wells Fargo, offers amounts as high as $100,000 for people who qualify.

Average Interest Rates

Interest rates depend on how good your credit score is. That's how banks determine how likely you are to repay them. If you pledge assets (like your home or car), banks are typically more willing to lend, and lend to you at better rates.

Because these are generally unsecured (you don't use any of your belongings to back the amount), interest rates are typically higher than what you would pay on a mortgage or car. That's because a lender is taking on more risk. A borrower with good credit can expect to pay 8.48% to 14.49% for a five-year terms, according to Informa Research.

The average borrower pays 10.64% on a 24-month term given by a commercial bank.

Getting Approved with Bad Credit

Putting up collateral or finding a co-signer can improve your chances of qualifying if you have bad credit

You can still qualify when you have bad credit. With poor credit, fewer banks may be willing to lend to you and you'll probably have to pay a higher interest rate. You may want to look beyond unsecured loans and pledge some assets to secure a new one. You can use your car as collateral but you risk losing it if you don't pay the amount back.

Or, maybe you have a family member or friend who can co-sign. If your co-signer is better-off financially and has better credit, this could help you get approved. The co-signer assumes responsibility if you don't make your payments and may be on the line to paying off your debt if you don't.

You don't always get to have your choice when you have bad credit. It's important to cure poor financial habits and replace them with better, more healthy ones. Sometimes, though, you just have to make due.

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What Happens if You Stop Paying?

If you default your credit score will decrease, you may be charged additional money, turned over to a collection agency, or have liens put on the property you have used as collateral

You may have every intention to pay back everything you borrowed, but life happens and can make paying it back really hard. When you don't pay back the amount, you're said to have defaulted.

So what happens when you stop paying back your debts?

Credit score goes down: Your credit score measures how likely you are to pay debts back. When you stop paying back a debt, it goes down. This will make it harder to borrow more money in the future.

Financial penalties: Some lenders charge you money when you miss a payment.

Aggressive calls from a collection agency: Banks end up selling off defaulted loans to other businesses. They hire collection agencies to call and write you until you pay it back (or a portion of it).

Liens on your property: Depending on the type you default on, lenders may be able to put a lien on your property and, in certain places in the world, your income. That means the lender can make it hard for you to sell your property or access your money.

Find Tips On Improving Your Credit (And Much More) On Our Blog.

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Personal Loan Rates

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Amortizing Loan Calculator

Top 5 Uses of Personal Loans

  1. Credit Card Refinancing
  2. Car Financing
  3. Major Purchases
  4. Home Improvement
  5. Debt Consolidation

Your Questions and Answers

What is a personal loan?

A personal loan is an unsecured loan that any U.S. citizen over 18 with a bank account and income source can apply for. Typical loan amounts range from $250 to $5,000 and are offered by banks, credit unions and online lenders.

What is a personal line of credit from a bank?

A personal line of credit represents funds available to an individual that are generally tied to a checking account. All or some of this amount can be used when needed, with funds becoming available as the balance is paid. Credit cards are an example of this type of credit.

What is a line of credit loan?

A line of credit loan is an amount of available credit based on a secured asset, such as a house. Home Equity Lines of Credit (HELOCs) are the most common and have an expiration date. Lines of credit secured with cash, CD's or savings generally have no expiration date.

How much does it cost to apply?

It's free. Applying for a personal loan doesn't cost anything.

Can I get approved today?

If you apply today, you will receive a response in a matter of minutes. If approved, your funds could be in your account in as little as 24 hours.

When will my funds be available?

Your funds could be in your account in as little as 24 hours.

I'm not from the United States. Can I still get approved?

No. You must be a U.S. citizen to qualify.

I have no bank account. Can I still get approved?

No. The amount borrowed will be direct deposited into your bank account. If you do not have a bank account, you will not be able to submit your application.

What can I use this amount for?

They are useful for many needs, including one-time special events (weddings, celebrations and holidays), unexpected expenses (car or home issues, emergency medical expenses) or almost anything else that requires extra funds.

What's my interest rate and when do I need to pay back the loan?

It varies and depends on the lender. Once approved and matched with a lender, you'll be transferred to their website where you can review their terms and repayment schedule.

How will I know if I'm approved?

After the application is submitted, we try to match you with a lender in our network. If successful, you'll be taken to an electronic signature page to complete the process.

I just got denied, what can I do?

People can be denied for many reasons, including a high debt-to-income ratio, bad credit history or low credit score. However, there may be solutions if you need finances right away and know why you were denied. You may consider debt consolidation if debt is an issue. There are many other steps you can take as well that can improve your credit score and reduce your debt.

The form doesn't let me finish. What should I do?

Look at your screen — if there is a message such as "required field," you need to complete the area on the form. If you do not have a bank account, you will not be able to submit your application.

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