Compare Personal Loans

Compare personal loans from a range of leading lenders to find the best deal

Last updated by Zaving Editorial Team, on May 15th, 2024

Navigating the world of personal loans can be overwhelming, but Zaving is here to simplify the process and help you find the best personal loan for your unique needs. In this in-depth article, we'll discuss the ins and outs of personal loans, including the types of personal loans, their advantages and disadvantages, and how to qualify for them. We'll also delve into some frequently asked questions to provide you with a thorough understanding of personal loans and how Zaving can make the comparison process a breeze.

What is a personal loan?

A personal loan is a type of loan you can get from a bank or credit union to use for your personal needs or expenses. Unlike loans for specific things like buying a car or a house, personal loans may not require you to provide  collateral, although sometime you may have to. You can use the money from a personal loan for different things like paying off debts, covering medical bills, making home improvements, or going on a trip.

When you get a personal loan, you have to pay it back in fixed monthly payments over a certain period of time. The interest rates and terms of the loan depend on factors like your credit history, income, and the rules of the lender.

Types of personal loans:

  1. Secured personal loans: These loans require collateral, such as a car or home, to secure the loan. If the borrower fails to repay the loan, the lender can repossess the collateral to recoup their losses.
  2. Unsecured personal loans: These loans do not require collateral and are approved based on the borrower's creditworthiness. They usually have higher interest rates than secured personal loans, as the lender takes on more risk.
  3. Fixed-Rate personal loans: These loans have a fixed interest rate for the entire repayment term, ensuring that your monthly payment remains the same throughout the life of the loan.
  4. Variable-Rate personal loans: These loans have an interest rate that can fluctuate over time based on market conditions. While this may result in lower initial payments, the rate could increase, leading to higher monthly payments in the future.

What are the qualification requirements for a personal loan?

When applying for a personal loan, there are certain qualification requirements that lenders typically consider. Meeting these requirements increases your chances of getting approved for a loan. Here are the key factors lenders look at:

1. Credit Score and History: Lenders assess your creditworthiness by evaluating your credit score and credit history. A higher credit score demonstrates responsible borrowing and increases your chances of approval. Lenders prefer borrowers with good to excellent credit scores, typically above 670.

2. Income and Employment: Lenders want assurance that you have a stable income and the ability to repay the loan. They may ask for proof of employment, such as recent pay stubs or tax returns. A steady income stream helps establish your financial stability and repayment capability.

3. Debt-to-Income Ratio: Lenders calculate your debt-to-income (DTI) ratio to determine your ability to manage additional debt. They compare your monthly debt payments, including the potential loan payment, to your monthly income. Ideally, a lower DTI ratio shows that you have sufficient income to handle loan repayments.

4. Employment History: A consistent employment history can demonstrate stability and reliability to lenders. They may evaluate your job stability, years of employment, and career progression. A longer employment history can strengthen your loan application.

5. Loan Purpose: Some lenders consider the purpose of the loan. While personal loans are typically flexible and can be used for various purposes, certain lenders may have specific requirements or restrictions for certain loan purposes.

6. Collateral: Personal loans are usually unsecured, meaning they don't require collateral. However, if you're applying for a secured personal loan, such as a car title loan or a home equity loan, the lender may evaluate the collateral and its value.

Remember each lender may have its own specific qualification criteria, so it's advisable to check with the lender directly to understand their requirements. Additionally, meeting the minimum qualification requirements doesn't guarantee loan approval, as lenders consider other factors as well, such as their assessment of your overall financial profile and risk assessment.

When applying for a personal loan, maintaining a good credit score, having a stable income, managing your debt responsibly, and demonstrating a reliable employment history can greatly increase your chances of qualifying for a loan. Understanding the qualification requirements and addressing any potential areas of concern can help you prepare a strong loan application.

What are the advantages and disadvantages of personal loans?

Before applying for a personal loan, it's essential to weigh the pros and cons to determine if it's the right financial solution for you.

Advantages:

  1. Flexibility: Personal loans can be used for various purposes, allowing borrowers to address their specific financial needs.
  2. Predictable payments: With a fixed interest rate and repayment term, borrowers can easily budget for their monthly loan payments.
  3. No collateral required: Unsecured personal loans do not require collateral, making them an attractive option for borrowers who do not want to risk their assets.

Disadvantages:

  1. Higher Interest Rates: Unsecured personal loans typically have higher interest rates than secured loans, as the lender takes on more risk.
  2. Fees: Personal loans may come with various fees, such as origination fees, prepayment penalties, and late payment fees.
  3. Impact on Credit Score: Applying for multiple personal loans within a short period can negatively impact your credit score, as it may signal to lenders that you are a high-risk borrower.

What factors should I consider when comparing personal loan offers?

When comparing personal loan offers, it's important to consider several factors to ensure you choose the best option for your needs. Here are some key factors to consider:

  • Interest Rates: Compare the interest rates offered by different lenders. Lower interest rates can save you money over the life of the loan.
  • Fees and Charges: Look for any origination fees, prepayment penalties, or other charges associated with the loan. These can impact the total cost of borrowing.
  • Loan Terms: Consider the loan term or repayment period. Longer terms may result in lower monthly payments but could cost more in interest over time.
  • Loan Amount: Determine the maximum loan amount available from each lender. Make sure it meets your funding needs.
  • Repayment Flexibility: Check if the lender offers flexible repayment options such as biweekly payments or the ability to make extra payments without penalties.
  • Customer Reviews and Reputation: Research the lender's reputation and read customer reviews to get insights into their customer service and overall experience.
  • Lender's Eligibility Criteria: Understand the lender's qualification requirements. Ensure you meet their criteria to increase your chances of approval.
  • Loan Approval Time: Consider the turnaround time for loan approval and funding. Some lenders may provide quick approval, while others may have longer processing times.
  • Additional Benefits: Look for any additional benefits or features offered by the lender, such as loan discounts for existing customers or loyalty programs.
  • Customer Support: Evaluate the lender's customer support services. Having responsive customer support can be helpful throughout the loan process.

By carefully considering these factors, you can make an informed decision when comparing personal loan offers. Take the time to review and compare multiple lenders to find the loan that best fits your financial situation and requirements.

How can I improve my chances of getting approved for a personal loan with a low-interest rate?

To increase your chances of getting approved for a personal loan with a low-interest rate, there are a few things you can do. Here are some tips:

Check and improve your credit score: Lenders look at your credit score to decide on the interest rate. Review your credit report, fix any mistakes, and try to improve your score by paying bills on time and reducing debt.

Have a steady income: Lenders want to see that you have a reliable source of income to repay the loan. Keep a stable job or income and provide the necessary documents to prove it.

Lower your debts: Try to pay off existing debts or keep them as low as possible. This helps show lenders that you can manage additional loan payments.

Shop around for the best offer: Don't settle for the first loan you find. Compare offers from different lenders to find the best terms and rates. You can use online tools or talk to a financial advisor for guidance.

Consider collateral or a cosigner: Offering collateral, like an asset, or having someone with good credit cosign the loan can improve your chances of approval and help you get a lower interest rate.

Get your documents ready: Collect all the necessary documents, such as pay stubs, tax returns, bank statements, and identification. Having everything prepared will make the loan application process smoother.

Show financial stability: Demonstrate that you manage your finances responsibly. This includes making payments on time, having a stable job, and not carrying too much debt.

Remember, every lender has their own criteria, so it's important to find lenders who specialize in loans for your situation. By taking these steps and presenting yourself as a reliable borrower, you can increase your chances of getting a personal loan with a low-interest rate.

Are there any alternatives to personal loans that I should consider?

Depending on your financial needs and circumstances, there may be alternative options to personal loans that could better suit your needs. Some alternatives include:

Credit cards:

A credit card can provide quick access to funds for emergencies or unexpected expenses. However, credit cards often have high-interest rates, so it's essential to repay the balance as quickly as possible to avoid accumulating interest.

Home equity loans or lines of credit:

If you're a homeowner, you may be able to tap into your home's equity to secure a loan or line of credit at a lower interest rate than a personal loan. However, this option requires collateral and could put your home at risk if you fail to repay the loan.

Borrowing from friends or family:

If you have a strong relationship with someone who is willing to lend you money, this could be an interest-free or low-interest alternative to a personal loan.

Peer-to-peer lending:

Online platforms connect borrowers with individual investors willing to lend money. Peer-to-peer lending can provide competitive rates and terms, especially if you have a good credit history.

Savings or emergency funds:

If possible, using your own savings or emergency funds is an ideal option as it avoids interest charges and repayment obligations.

Credit union loans:

Credit unions often offer personal loans at lower interest rates and with more flexible terms than traditional banks. Consider joining a credit union if you're eligible.

Government assistance programs:

In certain situations, government programs, such as small business loans or educational loans, may be available and offer more favorable terms.

When considering alternatives to personal loans, remember to weigh the pros and cons of each option, including interest rates, repayment terms, eligibility requirements, and potential risks. It's important to choose the option that aligns best with your financial goals and ability to repay the borrowed funds.

What are the potential consequences of defaulting on a personal loan?

Defaulting on a personal loan can have several negative consequences, including:

  1. Damaged credit score: Missed payments and loan default can significantly lower your credit score, making it more difficult to obtain credit in the future.
  2. Increased fees and interest: Lenders may charge late fees or increase your interest rate if you fail to make timely payments.
  3. Legal action: In some cases, lenders may take legal action to recoup their losses, which could result in wage garnishment or property liens.
  4. Collections: If your loan is sent to collections, you may be subject to additional fees and ongoing collection efforts, which can further damage your credit.

Got further questions about personal loans?

Can I get a personal loan with bad credit?

Yes, it is possible to obtain a personal loan with bad credit. However, these loans often come with higher interest rates and stricter requirements. You may also be required to provide a co-signer or collateral to secure the loan. It's essential to carefully compare offers and choose a reputable lender that caters to borrowers with less-than-perfect credit.

How long does it take to receive funds from a personal loan?

The time it takes to receive funds from a personal loan can vary depending on the lender and your individual circumstances. In some cases, you may receive funds within a few hours or the next business day, while other lenders may take several days or even weeks to disburse funds.

Can I prepay my personal loan without penalties?

Some lenders allow borrowers to prepay their personal loans without incurring prepayment penalties, while others may charge a fee for early repayment. It's essential to review your loan agreement and discuss prepayment options with your lender before making any extra payments.

Are personal loans tax-deductible?

Personal loans are generally not tax-deductible, as the IRS does not consider them qualified expenses. However, if you use a personal loan to finance specific expenses, such as home improvements or education costs, you may be able to deduct the interest paid on the loan, depending on your individual tax situation.

Can I have multiple personal loans at the same time?

It is possible to have multiple personal loans simultaneously, but it's crucial to carefully consider your ability to manage and repay all outstanding debts. Taking on too much debt can negatively impact your credit score and overall financial health.

What happens if I miss a personal loan payment?

Missing a personal loan payment can result in late fees, increased interest rates, and a negative impact on your credit score. If you're struggling to make your scheduled payments, it's essential to contact your lender as soon as possible to discuss potential solutions, such as adjusting your payment plan or requesting a temporary forbearance.

Can I refinance my personal loan for a lower interest rate?

Yes, refinancing your personal loan to secure a lower interest rate is an option if your credit score has improved or market interest rates have dropped since you initially took out the loan. Refinancing involves taking out a new loan with better terms to pay off your existing loan.

Can I use a personal loan to start a business?

Yes, you can use a personal loan to start a business or cover business expenses. However, it's essential to consider the loan's interest rate and repayment terms, as well as any potential risks associated with using personal funds for business purposes.

Are there any restrictions on how I can use a personal loan?

Generally, personal loans can be used for a wide range of purposes, such as debt consolidation, home improvements, or unexpected expenses. However, some lenders may have specific restrictions or guidelines regarding how loan funds can be used. It's essential to review your loan agreement and discuss any limitations with your lender.

Can I get a personal loan from a credit union?

Yes, credit unions often offer personal loans with competitive interest rates and borrower-friendly terms. To obtain a personal loan from a credit union, you typically need to become a member and meet their specific lending criteria. That being said, there are many other options for personal loans available through banks and non-bank lenders which might deliver more competitive rates. Its important to review all options which you can do through zaving! 

Do personal loans have a grace period for late payments?

Some lenders may offer a grace period for late payments, during which you can make a payment without incurring late fees or penalties. However, this varies by lender and may not be available for all loans. It's crucial to review your loan agreement and communicate with your lender if you anticipate having difficulty making a payment on time.

How does a co-signer affect my personal loan application?

A co-signer is someone who agrees to take responsibility for repaying the loan if the primary borrower fails to make payments. Having a co-signer with good credit can increase your chances of loan approval and help you secure a lower interest rate. However, it's essential to understand that the co-signer is also taking on financial risk, as their credit could be negatively impacted if the loan is not repaid on time.