How to find an affordable personal loan

September 10, 2018
Finding an affordable personal loan can be a tricky proposition. You need to consider the interest rate, minimum amount requirements, fees, and your ability to pay off the loan without incurring any penalties. The most affordable type of loan will vary depending on your needs and your financial situation.
How to find an affordable personal loan

Does your credit score matter? It depends.

Sometimes (but not all the time), you will be able to use your credit score to predict the interest rate you will get on a loan. If your credit score is 720 or above, you should be able to get a lower interest rate than someone whose score is 650 or lower.

Credit scores are important only if you are applying for a personal loan from a bank or a credit union. Online personal loan providers do not usually require a complete credit check. Rather, they ask to see bank statements and a pay stub.

Another option is to get a loan from a pawn shop. These loans require you to put up collateral (an item that has the same value as the amount of money that you want to borrow). When you pay back this loan, you will get your item back, minus a fee. If you do not repay the loan, the pawn shop can sell your item to recoup their loss.

Are non-bank loans more affordable?

With both online personal loans and pawn shop loans, you only have to borrow the amount of money that you need. This might not seem like an important trait, but it can make your loan more affordable because you do not have to borrow more than you need, so you can manage the payoff process more easily.

Loans from banks not only require a decent credit score, but they also require you to borrow a minimum amount, which is commonly in excess of $1,000. Neither pawn shop loans nor online personal loans require a good credit score.

What about credit cards?

Credit cards could be an affordable option if your card has a low interest rate. Credit cards could quickly become the least affordable option, however, because you do not have to repay the loan in installments. If you only make the minimum payment on your balance each month, you will end up paying more interest than a personal loan from any other source.  

Match your loan with your needs 

A personal loan from a bank could be the most affordable option if you have a decent credit score and if you need to borrow more than $1,000.

An online personal loan could be the most affordable option if you need to borrow less than $1,000 or if you have a poor credit score.

A pawn shop loan could be an alternative to a personal loan if you are sure that you can repay the loan, and you have something of value to put up as collateral. If you do not want to risk your possessions or property, an online personal loan is a better option.