Personal loans can help borrowers get the funds they need for a wide variety of expenses, from planned home repairs to unexpected medical bills. Unlike loans with a specified purpose like an auto loan or mortgage, personal loan funds can be used for many purposes.
Personal loans are accessible to a wide range of borrowers, though your interest rate and loan terms may vary depending on your credit score and other financial markers. In addition, the type of personal loan you get — secured or unsecured — can have an effect on how difficult the loan is to obtain.
Let’s take a closer look.
Types of Personal Loans
While personal loans can be used for different purposes, they can be broken down into two main categories: secured and unsecured. Here’s how the two types of personal loans work:
• Secured personal loans are backed by collateral owned by the borrower such as a savings account or a physical asset of value. If the loan goes into default, the lender has the right to seize the collateral, which lessens the lender’s risk.
• Unsecured personal loans, on the other hand, do not involve collateral. The money is lent based simply on an applicant’s creditworthiness and promise to repay. Because unsecured personal loans are riskier for the lender, they tend to come with higher interest rates and more stringent eligibility requirements.
Recommended: 11 Types of Personal Loans & Their Differences
Getting a Personal Loan From a Bank
In addition to the type of personal loan you choose, the lender you borrow from can have an effect on how difficult the loan is to obtain. For many borrowers, their bank is an obvious first choice when the time comes to take out a personal loan.
Banks sometimes offer lower interest rates than private lenders do, which may be particularly true if you’re already an account holder at that bank. However, they may also have steeper personal loan eligibility requirements, such as a higher minimum credit score requirement, and the loan may take longer to disburse than it would from a private lender.
Still, the convenience of utilizing the bank you’re already familiar with and the comfort of in-person customer service may be worth the trade for qualified borrowers.
Getting a Personal Loan From a Private Lender
Private, often online-only, lenders have a lower overhead cost of business, so their rates may be lower than rates offered by banks. Some private lenders specialize in personal loans for borrowers with bad credit scores.
It may be easier to qualify for a personal loan from a private lender — which is to say, there may be more wiggle room for negative entries in your credit history and other financial information — and the funds may be disbursed more quickly than they would from a major bank (although not always). However, in some cases, rates may be higher than they would be from a brick-and-mortar bank, and you won’t have face-to-face customer service interaction.
Is It Harder to Get a Personal Loan From a Bank or Private Lender?
Generally speaking, it may be more difficult to get a personal loan from a bank than a private lender — but your best bet is to compare a variety of personal loans and see where you’ll get the best interest rate for your financial situation.
Here are the basic differences between getting a personal loan from a bank and a private lender, at a glance:
|Interest rates may be lower, though eligibility requirements may be more stringent||Interest rates may be higher, but eligibility requirements may be more lenient|
|You could get lower rates or easier qualification requirements if you have an existing relationship with the bank||Some private lenders market personal loans specifically to borrowers with poor or fair credit — though at potentially high interest rates|
|You may have the option to visit the bank in person for a face-to-face customer service interaction||The entire process may be done online|
|Funds disbursement could take several days, possibly longer||Funds might be disbursed the same day or within a day or two|
Is It Easier to Get a Small Personal Loan?
Another important factor that goes into how difficult it is to get a personal loan is the size of the loan. It’s much less risky for a lender to offer $1,000 than $100,000, so the eligibility requirements and interest rates for the lower loan will tend to be much more favorable to the borrower.
That said, there are exceptions to this rule, such as payday loans. Specifically designed to offer small loans with a very short repayment timeline, payday loans often have interest rates as high as a 400% annual percentage rate. Even for a smaller personal loan, it’s generally less expensive to look for an installment loan that’s paid back on a monthly basis over a longer term.
What Disqualifies You From Getting a Personal Loan?
There are some financial markers that can disqualify you from getting a personal loan, even with the most lenient lenders. Here are a few to watch out for.
Bad Credit Score
While the minimum required credit score for each lender will vary, most lenders require at least a fair credit score in order to take out a personal loan — particularly an unsecured personal loan. If you have very poor credit, or no credit whatsoever, you may find yourself ineligible to borrow.
Another important factor lenders look at is your cash flow. Without an income, the lender has no reason to think you’ll be able to repay your loan — and so a lack of income can disqualify you from borrowing.
Not a US Resident
If you’re applying for personal loans in the U.S., you’ll need to be able to prove residency in order to qualify.
Lack of Documentation
Finally, all of these factors will need to be proven and accounted for with paperwork, so a lack of official documentation could also disqualify you.
Personal loans are relatively accessible to a wide variety of borrowers, though there are some factors that can disqualify you from eligibility. Additionally, the difficulty you’ll face in taking out a personal loan depends on a variety of factors including the size and type of the personal loan and which lender you borrow from.
There are lots of options out there, of course, but SoFi’s personal loan rates are competitive and fixed, and the unsecured personal loans have no fees. Checking your rate won’t affect your credit score* and takes just one minute.
Is it hard to get a personal loan?
The difficulty in acquiring a personal loan varies based on the type and size of the loan and which type of lender you borrow from.
Is it hard to get a personal loan from a bank?
Banks sometimes have more stringent qualification requirements than private lenders for personal loans, but it varies.
What disqualifies you from getting a personal loan?
A bad credit score, no income, or not being an official resident of the U.S. could disqualify you from taking out a personal loan.
*Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
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