More and more people are taking out personal loans and submit it, but it is not as easy as it sounds.
Whether you’re looking to renovate your home, tackle medical bills, or consolidate debt, you might be tempted to take out a personal loan. These short-term options are unsecured (meaning you don’t have to post a collateral) and can provide an influx of cash when you need it most.
The problem for many Americans is that they can be difficult to obtain.
LendEDU, a marketplace for loans and financial products, just released data showing that 76% of people who apply for a personal loan are refused. One of the main reasons for rejection? A low credit rating. The average American has a credit score of 687. During this time, the average FICO credit score of an approved candidate was 741.
Of those who are approved, LendEDU predicts that quite simply 35% then accepted the personal loan. It’s unclear why someone would turn down a loan they applied for, but the financial site says it could be because they didn’t get the interest rate or loan amount they requested.
While some consumers cannot get loans and others reject them, the reality is that more and more Americans are taking out personal loans. Currently, 16 million consumers have unsecured personal loans. According to a TransUnion, personal loan balances increased 10.8% in the second quarter of 2017, totaling $ 108 billion.
How to get a loan
The growth of financial technology lenders is one thing that helps people access personal loans. These fintech lenders differ from traditional banks in that they use technology and algorithms to assess a borrower’s creditworthiness. In some cases, these platforms offer peer-to-peer loans and act as an intermediary between borrowers and investors. In 2010, fintech represented only 3% of personal lenders. In 2015, Transunion says that number rose to 30%.
If you don’t know where to find a lender, NerdWallet has a great list where you can compare providers and choose the best personal loan deal based on your credit score and needs.
Popular options include SoFi, a fintech lending site that promises to offer fixed personal loan rates starting as low as 5.49% APR. Applicants can apply for their loan online and borrow amounts ranging from $ 5,000 to $ 100,000. Loan Club is also a popular peer-to-peer option that made borrowing $ 31 billion easier. Applicants on this site can get a personal loan with interest rates starting at 5.99%.
Ultimately, getting approved will depend on your creditworthiness. You may be able to find a lender if your credit score is below 630, but you will likely be hit with a higher interest rate of 25% to 30%. In these cases, an online lender would not be very helpful in consolidating debt because you might be faced with higher interest rates than a credit card. For best results, applicants should have a credit score above 690 to secure a personal loan with a good interest rate.
Brittany is a reporter at Yahoo Finance. Follow her on Twitter.
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