There are many financial institutions out there offering personal loans. Each of them has specific requirements for their borrowers. When surfing on the internet searching for the best online offers, you can compare the loan amounts, monthly payments and interest rates. Here, we are going to discuss what determines your creditworthiness when applying for a personal loan from different financial institutions in the specific situation and which of the options might suit you the best.

Three Types of Loan Issuers

When shopping around for personal loans, the main options for where to get a personal loan include banks, credit unions and online lenders.

Online Lenders

If you need a larger amount, it may be difficult to get a personal loan from a bank or credit union, even if you have already applied once. Online lenders make it easy to borrow money online or emergency loans online, even a large amount, if you meet the requirements. In case, your credit score is bad, you will be given a loan with a higher interest rate.

Recently, online lending institutions have become hugely popular due to their loyalty to clients with bad credit history, a wide variety of products and many other features. Applying for a loan from online lenders is the most convenient way as it allows to search personal loans quickly and get money within one business day. One more advantage is that online lenders conduct a soft credit check which makes a pre-qualification process much easier.

Local Credit Union

When applying for a personal loan from a local credit union, you will be able to get a loan with lower interest rates and more flexible terms. What is interesting is that they offer loans with lower interest rates to the clients with a bad credit history. If you need a small loan, for example, $2,000 or less, local credit unions are the best options.

Banks

Many clients have savings accounts at the banks which makes it easier to get a loan. Most of the banks offer unsecured personal loans with better rates, in case, you have an existing relationship. Some of the biggest American banks like Citibank, Discover and Wells Fargo offer unsecured personal loans. In this case, you need to have a good credit score to qualify for a personal loan at your bank. However, bank’s customers get some benefits, for example, applying without visiting a brick-and-mortar office, qualifying for larger loan amounts, debt consolidation loans, skipping a payment after a year of on-time payments and other.

Some of the larger banks offer personal loans with no credit score check or origination fee. They include Citibank, Discover, Marcus, Wells Fargo and other that claim to lend their new and existing customers up to $12,500 as an unsecured loan.

Some larger national banks prefer not to offer unsecured personal loans. When talking about a secured personal loan, you will be asked to designate collateral like a car or savings account. Given the fact that it comes in larger amounts, you will need to jump through some hoops. The first thing you will be asked to do at the bank is to fill out a loan application providing quite the whole list of personal and financial details. The collateral is needed as most of the secured loans give access to better loans and far lower interest rates.

How to Find the Best Products Online?

The best rates, in particular, can be seen on the sites for comparing quotes which are numerous on the web. To compare loan rates in a few minutes, you will need to fill out a form providing the type of loan, the amount and some other basic details. After searching, you get multiple loans offers from financial institutions available either online or offline. When comparing different offers from these financial institutions, you need to pay attention to the loan amount, monthly payments and interest rates offered by a specific institution.

The Factors Determining the Borrower’s Creditworthiness

Every financial institution is unique but none of the lenders is ready to issue a loan to an applicant with no proofs of creditworthiness. What is the most important factor determining borrower’s ability to pay off the obligation in full?

You might hear about credit score which is one of the most crucial elements taken into account by most of the lenders even if they claim they don’t check it.
Applicants with good or high credit score are offered with the best options when it comes to applying for a personal loan. A credit score of 690 to 720 is considered good while higher credit scores are considered excellent.

If an applicant has an average or bad credit score, he will probably be viewed by the lender as a borrower at high risk. It lowers the odds of getting a personal loan but there are many issuers who are still ready to cooperate with the clients with an average or bad credit score. In this case, rates are higher but you are allowed to take a loan with an average (630 to 690) or bad (300 to 630) credit score.

Final Thoughts

If you were wondering what is the best way to get a personal loan, there are three main options including banks, local credit unions and online lenders. Hope you found the above information useful and feel free to share your thoughts in the comments section below.

Author's Bio: 

Being a blogger and a freelance writer Jerry Wells enjoys sharing useful details, effective recommendations, and lifehacks. He often writes about personal finances and other related issues. Personal experience is the primary source of his inspiration.