Career Advice - A Community Blog

Erik Larson writes about the job market, resume improvement, and career advice

Finding the best personal loan

Written by Erik Larson, Community Blogger | Jan 10, 2018 12:48 AM

Applying for a new loan is a great idea if you need extra money and do not want to draw money from your own savings and investments accounts. These loan amounts may range from a few hundred dollars to tens of thousands of dollars or more depending on what type of loan that you apply for. There are multiple types of personal loans available, but these loans vary based on collateral required, loan amount, fees, underwriting requirements and other factors. Ideally, you will find the most competitive loan terms available before applying.

Understand Your Financial Situation
Before you take on any new type of debt, you need to understand what your financial situation is. Specifically, you should define what you want to accomplish by taking out the loan. For example, do you want to consolidate your debts, refinance a specific loan or achieve other goals? You may also determine what loan amount and loan payment are affordable for your budget. Some people may actually be able to reduce their monthly payments by taking out a new loan. One way that this can happen is if you refinance a high interest rate credit card with a low interest rate, fixed term loan. Remember that you may be responsible for this new loan payment for several years or longer. 

Determine Your Ability to Pledge Loan Collateral
In order to find a solid personal loan that accomplishes your goals, you must also explore both secured and unsecured loans. A secured loan is collateralized by an asset. This may be an asset that you already own free and clear or an asset that you are buying with the loan. Because a secured loan is linked to a valuable asset, the lender may offer you a better interest rate and better terms than if you apply for an unsecured loan. With a secured loan, the loan amount is usually linked to the asset value. 

An unsecured loan, on the other hand, does not have any collateral linked to it. In the event you default on this type of loan, there is no collateral for the lender to seize and use to repay your debt. Unsecured loans may be preferrable if you are concerned about losing an asset of value. However, their interest rate is typically substantially higher, and your loan amount may be lower. 

Shop for Low Rates
When you understand the ideal type of loan that you want to apply for, you can begin shopping for the best loan terms available. Some lenders specialize in a specific type of loan, such as a home loan or a car loan. Others may offer a full range of secured and unsecured loans. Keep in mind that your credit rating and overall financial picture will play a role in the rate that you qualify for. Many lenders publish their best rate possible online. However, their published interest rates may only be available for strong applicants who have a superior credit rating and an overall strong financial situation. It is smart to get pre-qualified with several lenders in order to find the best loan terms available for your unique needs financial situation.

Walk Through the Loan Process
After you have found the loan program that you believe is the best option for you, you simply have to follow the lender's instructions as you walk through the rest of the loan process. Some loan processes are very easy and fast to walk through. For example, if you need an unsecured loan with a loan amount of only a few hundred dollars, you may be approved for your loan within a day or two. On the other hand, if you are refinancing your home loan to obtain cash out of your equity, this process may take several weeks to complete. You may need to provide many bank statements, tax returns and other financial documents. 

Because there are numerous types of loans that you can apply for and because different lenders offer various rates and terms, you will need to understand exactly what type of loan you are looking for. Then, you will need to carefully analyze the options. While this may take some time, keep in mind that you can potentially save a lot of money over the life of the loan through your research efforts.

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