“Get A loan” is a decision that many settle on when it comes to solving unexpected money problems that pop up. Taking out a loan is one of the most common financial methods a lot of people take when they are faced with a lot of financial issues.
When it comes to financing big purchases, consolidating debt, or covering unexpected expenses, getting a loan can be a practical solution. However, with so many options available and different terms to consider, finding the right loan that suits your financial situation can feel overwhelming.
What Does It Mean to Get a Loan?
A loan is a specific sum of money borrowed from a lender, such as a credit union, bank, or online lender, with the term that it will be repaid over time with interest.
Loans have and will always remain a crucial financial tool for people who need access to immediate cash for a variety of reasons, including debt consolidations, home improvements, medical expenses, or major purchases. Furthermore, there are several different types of loans, each having its own terms, interest rates, and requirements.
Types of Loans
Here are the varying types of loans one can borrow, each with its own interest rates, terms, and requirements:
Personal Loans
One of the most common types of loans is the personal loan. This type of borrowed funds can be used for literally any purpose, including, covering an emergency expense, such as consolidating debt or making a large purchase. Moreover, personal loans are typically unsecured, meaning they don’t require collateral like a house or car.
- Amounts: $1,000 to $100,000
- Interest rates: 5.99% to 36% APR (depending on credit score and lender)
- Repayment terms: 12 to 84 months
- Auto Loans
Auto Loans
Auto loans are simply secured loans that are designed for purchasing vehicles. The loan is usually secured by the car; hence the interest rates tend to be lower than unsecured loans.
- Amounts: Based on the car’s value
- Interest rates: 3% to 10% APR
- Repayment terms: 36 to 72 months
- Home Loans (Mortgages)
Home Loan
Another popular type of loan is a Home loan, also known as a mortgage. This loan is typically a long-term loan and is used to buy real estate. What’s more, the loans are secured by the property itself, and the interest rates only vary depending on the type of mortgage.
- Amounts: Based on home value, typically $100,000 to $1,000,000
- Interest rates: 2.75% to 6% APR
- Repayment terms: 15 to 30 years
Student Loans
Student loans are another well-known type of loan that is designed to help students pay for their education. Additionally, there are only federal and private student loans, with the federal loans offering lower interest rates and more flexible repayment options.
- Loan amounts: This widely varies based on the educational expenses
- Interest rates: 4.99% to 7.54% APR for federal loans
- Repayment terms: 10 to 25 years
Payday Loans
Payday loans are short-term loans paired with high-interest, intended to cover immediate expenses until your next paycheck. These loans should be used with caution due to their high fees and interest rates.
- Interest rates: 300% to 500% APR
- Loan amounts: $100 to $1,000
- Repayment terms: 2 to 4 weeks
These are some of the well-known loans that lenders usually give to borrowers who need help solving financial problems.
How to Easily Get a Loan
With the current age of digitalization, a lot of banking services have fully been optimized and have been made easy for one to use. Here is a simple process of how you can get a loan:
Determine the Type of Loan You Need
Before applying, you must first know what type of loan is best for your financial situation. Each loan type comes with its own specific uses, terms, and eligibility requirements, so make sure you’re applying for the right one. You must decide on whether you need a student with students, or personal loans for medical bills, etc.
Check Your Credit Score
Your credit score is one of the most critical factors in determining your eligibility and the interest rate you’ll be offered. Most lenders will require a credit score of at least 600 to qualify for a personal loan. However, the higher your score, the better rates you can get. Here are the rankings of credit scores:
- Excellent credit: 720 and above
- Good credit: 690 to 719
- Fair credit: 630 to 689
- Bad credit: Below 630
Compare Lenders and Loan Offers
The next thing that you want to do is to start shopping around lender’s offered rates. Different lenders will offer different rates and fees, so it’s important to shop around and compare offers from multiple lenders to ensure you’re getting the best deal. Furthermore, you can also compare loans from traditional banks, credit unions, or online lenders.
Pre-Qualify
Many lenders will allow you to pre-qualify for a loan, which allows you to see potential interest rates and terms without affecting your credit score. This is a great way to compare offers before you finally submit a formal application.
Submit a Formal Application
Further on, you’ll need to submit a formal loan application. As long as you have selected a lender, you’ll be required to provide personal information, such as your proof of income, Social Security number, employment details, and possibly tax returns. Additionally, you may need to provide additional documents, like your proof of residence or financial statements.
Receive Loan Approval
After submitting your application, the lender will review your credit history and financial information to determine whether to approve the funds. If approved, you’ll receive the terms, including the loan amount, interest rate, and repayment schedule.
Sign the Loan Agreement and Receive the Funds
Once approved, you’ll need to sign the loan agreement. Afterward, the funds will be disbursed directly to your bank account, often within a few days, depending on the lender.
These are the simple steps on how you can apply for any type of loan in existence with ease. However, keep in mind that different lenders have different loan terms and rates.
What Are the Interest Rates?
The interest rates you get on loans vary depending on several factors, including your credit score, loan amount, and repayment terms. It also depends on whether it is secured or unsecured. Here’s a breakdown of typical interest rates based on the types:
- Personal loans: 5.99% to 36% APR (depending on credit score)
- Auto loans: 3% to 10% APR
- Student loans: 4.99% to 7.54% APR
- Home loans: 2.75% to 6% APR
- Payday loans: 300% to 500% APR
Some of the top lenders you can try out include SoFi, LightStream, Upstart, Marcus by Goldman Sachs, Lending Tree, Wells Fargo, Prosper, and many more.
Frequently Asked Questions
Here are some frequently asked questions you can check out:
What credit score do I need to have?
Most lenders will require you to have a minimum credit score of 600 to 620 to qualify for a loan. However, borrowers with scores above 720 are more likely to receive favorable interest rates.
Can I get a loan with bad credit?
Yes, you can still get a loan with bad credit. However, you may face higher interest rates. Some lenders, like Upstart, specialize in loans for borrowers with lower credit scores or limited credit history.
How long does it take to get approved for a loan?
The approval process varies by lender. Some of these online lenders do offer same-day approval, while traditional banks may take a few business days. Once approved, funds are usually disbursed within 1 to 7 business days.