Cheap Personal Loans

Cheap personal loans

If you need a bigger loan than your credit card balances will allow, a personal loan is one way to get the money you need at relatively cheap rates. Study the market and read the fine print to make sure you are getting the lowest interest rate and the best loan terms available.

Here is a rundown of sources for low interest personal loans:

Peer to peer loans

Before you sit down with the loan officer at your bank, check peer to peer lending sources online. Banks set their rates based on many factors, one of which is the risk you pose as a borrower. Peer to peer lending spreads that risk out among a large group of lenders allowing them to charge a much lower interest rate.

To apply you will need accurate financial information handy. Take the time to prepare a personal balance sheet and a personal profit and loss (P&L) statement prior to filling out the application. This will ultimately save you time and not only improve your chances of gaining approval, but of securing the best interest rate available.

Prosper, one of the leading peer to peer lenders describes the process:

“Here's how it works:

  • Borrowers choose a loan amount, purpose and post a loan listing.
  • Investors review loan listings and invest in listings that meet their criteria.
  • Once the process is complete, borrowers make fixed monthly payments and investors receive a portion of those payments directly to their Prosper account.”

Prosper does not lend to those with credit scores below 640. Lending Club, another peer to peer lender will work with those borrowers whose credit scores are above 600, while Peerform prefers those with scores above 660, but may work with lower scores. All three lenders offer a wide range of interest rates and promise no hidden fees.

Unsecured bank loans

Unsecured bank loans typically do not offer the lowest rates on the market. The benefit to these loans is that your assets are not at immediate risk. They also typically carry fixed rates and a fixed repayment schedule, so you know your cost and you know when the loan will be paid off.

The best rates for small unsecured loans are probably going to come from a low rate credit card. However, banks like Wells Fargo offer very good fixed rates to those with excellent credit. You can check your rate here. A sample of personal loan terms are listed in the following table.

Bank Name Fees Rate Range Repayment Range Loan Amount Range
Wells Fargo $0 7.25% - 9.25 Fixed 12 - 60 months $3000 - $100,000
Citibank $0 6.74% - 19.49% Fixed 24 - 60 months $500 - $50,000
Sovereign Bank $0 10.49% Up to 60 months $5000 - $25,000
TD Bank $50 6.33% - 8.90% Up to 60 months $2000 - $50,000

Many other banks offer large unsecured loans only to customers with good credit and significant assets without a lot of existing debt. If you default on an unsecured loan your creditor will typically go to court and get a money judgment against you which can be attached as a lien on personal property. They get paid when you sell or refinance.

The vast majority of the time your personal assets are not at imminent risk if you default on an unsecured loan, however a creditor can push you into involuntary bankruptcy. If you have fewer than 12 creditors it takes only one to demonstrate in court that you have failed to repay them and that you generally fail to pay your debts. This situation is extremely rare since most individuals have few assets and secured debts will be settled first. If an unsecured creditor forces you into bankruptcy they would more than likely leave empty handed and can no longer attempt to collect the debt.

Secured bank loans

Secured loans can be easier to obtain and often have lower interest rates and more favorable terms than their unsecured counterparts. The one drawback to secured loans is that the collateral you offer in order to get the favorable rates and terms is put at risk.

Cash, real estate and automobiles are the most common forms of collateral. Some banks will also lend money on collectibles like coins, stamps and jewelry. They will require an appraisal of the asset and will only lend a small portion of its value.

Sites like Bankrate.com offer rate shopping based on your zipcode, but when it comes to personal loans, the best bank is often the one with which you’ve had a long-standing relationship.

Secured loans can take the form of fixed amount loans or lines of credit. A line of credit is almost always secured with real estate.

Fixed amount loans

Bank Name Fees Rates at Time of Comparison Repayment Range Loan Amount Range
Wells Fargo $0 fees, closing costs vary As low as 6.62% 5-20 years $10,000 min - $3,000,000
Bank of America $0 fees, no closing costs on loans under $500k As low as 5.49% 3-25 years $25,000 min
Citibank $0 As low as 7.99% 5-30 years $10,000 - $200,000

Secured Line of Credit

Bank Name Fees Rates at Time of Comparison Repayment Range Loan Amount Range
Wells Fargo $0 application fee / choice of closing costs
$75 annual fee
6.38% variable or fixed options 10 year draw $10,000 - $500,000
Bank of America $0 application fee / choice of closing costs
$0 annual fee
6.94% variable 10 year draw period followed by 15 year repayment period $25,000 - $500,000 (primary residence) and $100,000 (vacation home)
Citibank No application fees, points or closing costs.
$50 annual fee
4.49% variable 5 year draw period, Repayment of 5 - 30 years $10,000 - $1,000,000

Golden Rule

Don’t borrow more than you can afford to repay. You may not be able to plan for every circumstance, but when looking at your income and debts, consider all the unexpected expenses that can and do pop up in the average person’s life. Bankers rely on formulas. You have a better idea of your financial reality.

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