Finding a suitable personal loan isn’t always easy. And if you have a lower-than-average credit score, it’s even more difficult. So, where do you turn for a decent personal loan with an affordable interest rate? Luckily, there are a few options out there specifically designed for borrowers with poor credit. If you’re currently in the market for a personal loan, read on to see a personal loan rates comparison.
Personal loans come in many different varieties. There are large personal loans for things like vehicle repairs or unexpected medical bills. And there are small-dollar personal loans for minor expenses like utility bills, groceries, and other day-to-day costs. And each type of personal loan will have a different interest rate and set of terms.
The loan you choose will depend on several factors, including your current financial needs, credit score, and income or ability to repay the loan.
Read on to learn more about personal loans, the rates they come with, and what to expect when shopping for the right financial product for you.
What Are Personal Loans?
The first step in any loan shopping process will be to know precisely what type of product you’re looking for. In this case, the first step will be defining “personal loans” and understanding what types are out there.
A personal loan is any loan that a borrower uses to pay for personal expenses instead of business or commercial expenses.
Common reasons that people take out personal loans include unexpected medical bills, car repairs, home repairs, children’s school costs, and more. Any personal expense that you can’t cover with your regular income could be settled with a personal loan.
As we mentioned, a personal loan can come in many different forms. And each personal loan will come with its own specific interest rate, APR, repayment terms, and other conditions. Therefore, it’s crucial to review all of this information before signing for the loan you’re considering.
How Do Personal Loans Work?
The way your personal loan works will depend on which type you choose. That being said, there is usually a basic process that will apply to most personal loans.
The application and funding process for your personal loan will usually look something like this:
- You find a loan and lender that you’d like to use.
- You fill out an application either online or in-person at a storefront location.
- The lender reviews your application and decides whether to offer you a loan.
- If you get the loan, you’ll receive the money, usually through direct deposit.
- You can then use the money for whatever personal expenses you need it for.
- You’ll begin to repay the loan on the date specified in the loan agreement.
- You’ll make payments until the entire loan is repaid.
- If you pay off the loan by or before the due date, then the loan agreement is complete.
Of course, there is an entirely separate process if you can’t repay the loan by the due date. If you can’t, the lender may offer to “rollover” the loan to a new term. Essentially, this gives you more time to repay the loan but adds more fees and interest.
Make Sure You Understand Your APR
One of the most important factors to consider when shopping for your new personal loan will be the APR. No matter what type of loan you’re looking for, it will have an APR, and you must know what it is before agreeing to the loan. Even if you desperately need a loan for bad credit, make sure to understand the APR and terms before signing for it.
APR stands for annual percentage rate. So it would be the total cost of the loan if you were to have it for one calendar year.
This is arguably the most important thing to review before signing for a loan. Whether “I need a payday loan immediately“, a personal installment loan, bank loan, or applying for an online cash advance loan, make sure you always know the APR.
APR vs. Interest Rate
You may be wondering how the APR is any different than the interest rate. And that’s a great question!
The APR is a more all-encompassing assessment of the actual cost of a loan or financial product.
While the interest rate only considers the interest, the APR combines the interest rate, origination fee, processing fee, and other costs associated with the personal loan.
If a lender is only referencing the “interest rate,” make sure you ask about the APR specifically. Knowing the APR will not only tell you the actual cost of borrowing but will allow you to compare the cost of different personal loans you’re considering.
Some states even have laws that force lenders to specifically disclose the APR for their personal loans instead of just the interest rate. So whether you live in one of these states or not, make sure you’re fully aware of the APR before signing for your personal loan.
Personal Loan Rates Comparison
So you’ve found yourself in a financial bind, and you need a little extra cash to get out of it. Many Americans are experiencing this exact same situation every day. You may be wondering which type of personal loan is right for you. Well, the answer may be the one with the lowest annual percentage rate (APR).
The loan you choose will largely depend on the one you can get approved for. And this will depend on your current credit score and credit history. But once you know which loans you can get, it will come down to the APR range you’re able to get for each one.
Below are some of the most common personal loans meant for a borrower with a lower-than-average credit score:
Personal Installment Loans
Personal installment loans tend to be some of the best when it comes to a personal loan for a borrower with a low credit score. All lenders will likely offer different interest rates, which may fluctuate based on your specific score and the laws in the state where you live. But on average, a personal installment loan will usually carry a lower interest rate than many payday and title loans.
A personal installment loan is an unsecured loan, which means you won’t have to offer up any collateral to get one. Instead, these personal loans are given based on your credit score, income, and overall ability to repay them.
These loans typically come in larger amounts than payday or pawnshop loans. They also allow borrowers a longer loan term on average. Which means you’ll have more time to repay your loan amount. This can make your monthly payments more manageable, which makes these one of the top loans for bad credit.
Personal installment loans tend to be at the top of the list for many borrowers when it comes to bad credit loans.
When you compare them to other low-credit options, you’ll usually find better interest rates and longer repayment terms. And the best part is, you can get an installment loan for bad credit online!
A pawn shop loan is a secured loan, which means you have to offer collateral to the lender to get one. The collateral for a pawnshop loan could be anything of value that they’re interested in. Typical items that pawnshops will accept as collateral include jewelry, electronics, and musical equipment.
The risky thing about these personal loans is that failing to repay the loan on time means losing your valuable item. The pawnshop will keep it and sell it to recover their money. They may also try to sneak in extra costs like a costly processing or origination fee.
Interest rates also tend to be very high for pawnshop loans. When comparing them to other personal loans, they may not be as high as payday loans, but they still end up being quite costly. And if you lose your collateral, then they’re even more expensive in the long run.
If you want to avoid high interest rates, a small loan amount, and losing a valuable item, then we’d recommend finding a different personal loan.
A title loan is a lot like a pawnshop loan but on a much larger scale. Which makes them even riskier options for a quick personal loan.
This is another secured loan, which means you’ll need to offer the lender collateral. The collateral, in this case, would be the title to your vehicle. Essentially you’re risking your ownership of your car, truck, SUV, van, or motorcycle. If you can’t repay the loan on time, the lender will keep your vehicle and sell it to recover the loan amount.
When it comes to the APR, interest rates, and even the origination fee for title loans, they tend to be very high.
And since the loan amount is based on the value of your vehicle, it may be challenging to repay a high loan amount by the due date.
At CreditNinja, we believe that risking your vehicle isn’t worth it. This may not be the best personal loan if you need your car to get to work or take the kids to school.
A payday loan is one of the most costly and dangerous personal loans out there. They’re known for being predatory and taking advantage of borrowers in need.
When it comes to comparing the rates for personal loans, payday loans are usually some of the highest interest rates you’ll find.
A payday loan is an unsecured personal loan. You won’t need any collateral, and loans are given based on the promise to repay. Many payday lenders aren’t even concerned with checking a borrower’s credit history. This is because failing to repay the loan could end up making the payday lender more money in the long run through a process called “rollover.”
Rollover is when the lender extends the loan and adds more interest and fees. It usually traps borrowers into a cycle of debt that’s tough to escape.
One of the problematic things about payday loans, aside from offering extremely high interest rates, is that they need to be repaid in one lump sum instead of monthly payments.
Payday lenders pitch themselves as a quick and easy solution for a borrower with a low credit score. But It’s usually not worth the long-term financial repercussions.
The Minimum Credit Score for a Good Rate
There’s one significant factor that you should be aware of in your search for the best personal loan for you. It’s not what monthly payments you can afford or the apr range. It’s your current credit score. Your credit score is going to dictate which of these personal loans you have access to.
Having a good credit score will mean access to a better, low-interest personal loan.
We recommend focusing as much time and energy as you can on improving your credit score. This will help you get a larger loan. It will also help you find a loan with a low interest rate, reasonable origination fee, and better loan term.
Credit scores usually range from 300–850. And when you get your score up to 670 or higher, it’s traditionally considered “good.” This is when you’ll start to see better interest rates and terms.
There’s a lot to consider when getting approved for a personal loan. The APR range you’re offered is essential, as well as getting a manageable and flexible loan term. In addition, your credit score will be responsible for what types of deals you get. So if you improve your credit score, you’ll improve your chances of getting a decent loan.
When comparing the rates, terms, and risks associated with the personal loans listed above, many low-credit borrowers opt for a personal installment loan.
These personal loans are unsecured, so that you won’t need collateral. You may also be able to get a better interest rate than payday or title loans. You’ll likely have a longer loan term and more time to repay your loan as well.
No matter which loan you choose, make sure you do plenty of research. Find out the APR, the total personal loan rates, and assess your debt to income ratio so you know what you can afford.