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The Complete Personal Loans Guide for Anyone Who Needs Cash Right Away

At some point, everyone experiences a shortage of cash, whether it’s as small as $1,000 or as large as $100,000. Personal loans exist to help people meet a financial need that wouldn’t be satisfied with their savings or income alone. And this article explains how personal loans work, the different loan types, loanable amount, fees and costs, and how you can apply for one.

How do personal loans work?

A personal loan is a type of credit that serves different purposes for the borrower, including purchasing big-ticket items like a car or a house, paying for education or medical bills, or even consolidating other debts to more manageable payments. When you apply for a personal loan, you are essentially borrowing a fixed amount of money from a bank or a credit union with the promise that you’ll pay everything back in installments plus interest. And while this credit type aims to finance anything that the borrower needs, not all personal loans are created equal. The loanable amount and the interest rate may vary depending on the institution and your credit history.

Requirements to qualify for a personal loan

Generally, personal loans classify as an “unsecured debt,” which means there’s no need for collateral or a guarantor from the borrower. Therefore, banks and other institutions may only require you to accomplish your loan application plus a set of documents and other requirements. The documents needed are standard among lenders and fall under three categories: proof of income, proof of identification, and proof of address.  So, in verifying your identity, you would typically need to submit just two forms of identifications (e.g., passport, driver’s license, national ID, etc.). As for proof of income, the usual documentation involves copies of your bank statements, pay stubs, or tax returns. And a valid proof of address includes a utility bill, lease or rental agreement, or a voter registration card. And since personal loans do not require collateral, the only guarantee of repayment for lenders is your creditworthiness, so when you apply for personal loans, lenders may also do a hard pull of your credit score.

What do you need to know about personal loans?

Now before you even send your application, you must at least be familiar with some of the common personal loan terms:

Interest: The interest is the extra amount you have to pay on top of the total sum you borrowed. It is expressed as a percentage of the principal. And the best way to think of it is it’s the fee or bank’s charges for extending you the opportunity to use their money.

Principal: The principal is the total amount of money you borrowed from the lender, excluding the interest.

APR: APR or “annual percentage rate” is a more comprehensive picture of the loan’s aggregate cost. It factors in all fees and additional charges plus the interest rate, making it a better metric for easier comparison between lenders.

Monthly Payment: This refers to the fixed amount of money that you must appropriate for the loan principal’s repayment, including interest rate charges.

Repayment Term: The repayment term is the length time you have to pay off the loan, usually between 12 months to five years. Some borrowers prefer longer-term loans because of the lower monthly payments. However, the more a loan is stretched to fit the longer duration, the higher the interest cost will be.

Types of personal loans

Once you’ve determined that there is a necessity to seek credit, the next step is to figure out the loan type best suited for your financial situation. Because even though personal loans are usually “unsecured,” there are other types that you should know about to help in your decision-making.


This is the most common kind. And as mentioned earlier, collateralized assets or a guarantor is not required. But you must have a decent credit score to gain approval.  In other words, unsecured loans can help if you don’t have many assets that can be used as collateral but have a good credit history.

Secured Loans

Contrary to unsecured loans, secured loans, as the term suggests, require some security in the form of collateral. Your assets like your car or savings will serve as protection for the lender if you are unable to pay the loan. In such an event, the lender will have to seize the collateralized asset. But despite its seeming disadvantage, the upside to secured loans is that it extends better interest rates, higher borrowing limits, and longer payment duration.

Cosigned Loans

With a cosigned loan, an extra party guarantees the repayment of the amount you borrowed. Lenders would ask you for a consigner who will accept the responsibility of paying your loan in case of a default. This loan type can either be secured or unsecured, and it is useful if you don’t have an existing credit history.

Debt Consolidation

Debt consolidation is a type of loan wherein all existing debt payments are combined and converted into a single payment. This type of loan exists because some borrowers may have acquired loans from different lenders with varying rates. Sometimes credit card debts and other liabilities may have also piled up, and in such a case, debt consolidation may help reduce overall costs.

Personal Line of Credit

This type of loan is a revolving credit, which means that you can borrow a certain amount of cash as needed. A personal line of credit is more comparable to a credit card than a loan, and the advantage of this is it can cover any emergency or unplanned expenses. Another benefit is that you only pay interest on the amount you borrowed. Still, getting a personal line of credit is beyond reach if you don’t have a good credit history and an excellent credit score.

How much can you borrow?

The amount of money you can borrow depends on a few factors and may include your credit score, the purpose of the loan, how much your income is, any existing liabilities, and of course, the bank or credit union. What you have to understand about creditors is that they try to assess your ability to repay your loan, and most of the stuff they look at paints this picture. For instance, the reason why they examine your existing liabilities and income is to understand if you have enough money each month to allocate for personal loan repayment. Credit history is also important because it offers a background of how good of a borrower you are. However, even if you don’t have the sparkliest score, lenders may still consider your application as long as everything else is in order. There are also second chance loans offered to those who have a poor credit history. You can expect to borrow an amount between $1,000 to $50,000 from most lenders. Some institutions may even offer as high as $100,000, but again, it depends on the factors mentioned above.

Personal Loans with low APR

As previously touched on, the APR represents the loan’s aggregate charges and is your best gauge to evaluate the most cost-effective personal loan option. One of the lenders that provide the lowest APR, according to, is LightStream. It offers a 5.95% APR, a $100,000 max loan amount, and a term length of 2 to 7 years. While not rated by the Better Business Bureau, its parent company Truist Financial Corporation has an A+ rating. However, to get approved for a loan, LightStream requires a minimum credit score of 660 plus several years of good credit history. So, if it’s an online lender that is as competitive as what LightStream’s offers but isn’t as stringent on credit score and credit history, SoFi Finance Inc. is the choice. SoFi’s APR is only higher by 0.05% compared to LightStream. And the way they assess creditworthiness is through free cash flow or the remainder of your income after paying all expenses.

Personal loan guaranteed approval

Of course, there are also personal loans with guaranteed approval, and borrowers who seek this kind of credit would typically face no hassle in their application. Lenders of this loan type will allow you to borrow money regardless of your credit history or score and without collateral. This is also called payday loans, fast cash, deferred deposits, low credit loans, or cash advances, and the standard range of the amount you can borrow is $350 to $1,500. You can benefit from guaranteed personal loans if you happen to run short on a few cash and need to pay for something urgent.

The answer is yes, it is possible, but you have to prove to creditors that you have other sources of income to repay your debt. Usually, if the only reason for your lack of a job is due to unexpected unemployment, but you have a good credit score, there is a good chance that lenders may grant you the loan.

Yes, it is possible to do so, but it would be much easier if you have one because your account is where lenders deposit the money you borrowed. Also, without a bank account, your options may be limited to high-fee lenders.  

A private lender is either an individual or group of individuals who are not necessarily in the business of lending money but may pool funds to finance investments or businesses, one of which may include extending loans with the sole purpose of earning a decent return.

It sometimes is because it frees you of any debt, which saves you money in the long run, and it might even improve your credit score. However, the disadvantage is that you might pay an early settlement fee or a prepayment penalty fee.

The answer is yes. It is entirely up to you to decide what to do with the sum of money you borrowed. Still, you have to remember that lenders ask what your loan’s purpose is in your application as it is one of their criteria for determining their risk in lending you money.

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