How to Choose the Best Personal Loan Provider

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If you have a fair credit score (i.e. a score between 580 and 699 according to FICO), it may be more difficult for you to obtain a favorable personal loan with a good APR without some legwork. However, the right provider will offer you fair terms and interest rates, which is why knowing how to identify a reputable lender is so important.

What are Loan Providers?

Lenders are companies or institutions that offer personal loans in the form of a lump sum cash amount. This is a broad and rather vague term that covers institutions such as:

  • Banks
  • credit unions
  • payday loan companies

Even credit card companies, store card providers, and individuals can technically be considered loan providers if they lend you money. The difference between a cash loan from a friend and a third party is obvious, of course, but the difference between a lender and a personal loan provider is in how the credit is granted.

A credit card or store card provider gives you a balance to use and pay off repeatedly, while a loan provider will enter into an agreement to give you a cash lump sum. Once this amount has been repaid (plus interest), the contract will be terminated.

What are the signs of a reputable lender?

One of the main concerns everyone should have when looking for a personal loan is finding a reputable, ethical, and legitimate loan provider. Signs of a strong, reliable and reputable personal loan provider include, but are not limited to:

  • A secure site.
  • Clear terms and conditions.
  • Clear contact options and professional customer service.
  • Unbiased reviews and ratings online.
  • In good standing with the Better Business Bureau (BBB).
  • Information on regulatory compliance measures is readily available.

Of course, if you go for a loan from a major bank or credit union, that won’t be a problem. If you plan to lend smaller and younger, you need to check that all those green flags are in order. But what about red flags?

What red flags should I be aware of?

Most of us are aware of the dangers of taking high interest loans from individuals (sometimes called loan sharks), but the truth is that not all registered loan providers are reputable. There are several red flags you should be aware of.

Of course, you should be wary of any loan provider who does not have the positive characteristics listed above. However, you can also look for these red flags:

  • Very short repayment term and high repayments.
  • High assembly costs.
  • High prepayment charges.

Any loan provider who charges you huge fees to take out a loan or settle a debt early is probably going to give you a bad experience. They may operate legally – in fact, they most certainly will – but some types of lending are loosely regulated and can lead to a cycle of borrowing and mounting debt. Payday lenders are the most common type of legal lender that operates under such terms.

How can I improve my chances of getting a fair loan?

Obtain online personal loans for fair credit scores are possible, but can be tricky if you want to borrow large amounts. Ironically, if you have a fair credit score and want to improve it quickly, taking out a smaller personal loan and paying it off in full is one of the best ways to do that.

If you can, borrow small amounts once in a while and pay them back quickly to improve your credit score. This is one of the best ways to improve your chances of getting a larger personal loan at a good interest rate, in an emergency.

Assuming you need to get a personal loan quickly, however, you can improve your chances by taking the following steps:

  • Pay off any debt you have as much as possible to reduce your debt-to-income ratio.
  • Eliminate erroneous black marks on your credit history (e.g. disputing falsely reported missed payments).
  • Shop around and consider a variety of loan providers.
  • Perform soft credit checks to assess your chances of success.
  • Ask for only what you need or a little less than you need if you are having difficulty getting a larger loan.

Don’t forget that you can also apply for secured loans that use assets as collateral or require a co-signer if you are unable to secure an unsecured loan!

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