Loans

    Whether you're getting an auto or college loan, you want to get the best deal possible. Learn how to compare loans, interpret data on loan options, and find the best rates for you.

    Frequently Asked Questions

    • How do loans work?

      A loan is an agreement with a lender in which you receive money now and agree to repay the funds later. To compensate the lender for the money they provide, you will usually repay more than you received. That compensation might be in the form of fees and charges you pay at the beginning or interest payments you pay over time. And often both.

    • What credit score do you need for a loan?

      The short answer is that you don’t need a credit score for a loan if you’re willing to pay a high enough interest rate. Payday lenders and others will lend you money without checking your credit score—for a price. But to get affordable rates, you will need a decent credit score. According to the credit bureau Experian, 670 is a “good” credit score. At that level, you should expect to be approved for loans when you apply, but the best rates and terms will be reserved for borrowers with higher scores.

    • How long does it take to get a loan?

      The time it takes to get a loan depends on three things: How long it takes to apply, how long it takes the lender to approve the loan, and how long it takes the lender to get you the funds. Generally speaking, online lenders will have the fastest application process, while banks and credit unions will be able to fund the loan quicker. For personal loans, expect anywhere between one to several days, depending on the institution and your financial needs.

    • How can you get a loan with bad credit?

      You can get a loan with bad credit, but it’s hard to get a good deal. That means you’ll have to shop around. Try credit unions, online banks, and peer-to-peer lenders. If you have family members with better credit scores, you can ask them to be a co-signer. If you have assets—cash, a car, a home—you can use them as collateral to secure the loan. Finally, shop carefully; some unscrupulous lenders target people with bad credit and offer expensive loans that make matters worse.

    • How many loans can you take out?

      A better question to ask is: How much money can you borrow? When you apply for a loan, lenders want to know if you have enough income to support your debt obligations—existing and new. They use a ratio of debt-to-income (DTI ratio) to understand how much more debt you can afford. If your DTI is under 10%, for example, you’re likely to be approved. But once your DTI reaches 43% or higher, you’ll have a harder time convincing a lender you’re a safe bet.

    Key Terms

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    Soft Loan
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    common amortizing loans: home loans, auto loans, and personal loans
    Amortization
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    Bank Credit
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    Grace Period
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    Hard Money Loan
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    Loan-to-Value Ratio (LTV)
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    Acceleration Clause
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    how a loan term works: the lender sets a required monthly amount, the payment is calculated so that the loan is gradually paid off during the loan's term, and you'll pay more interest overall on a long-term loan, but your payments will likely be less because the principal balance you borrowed is spread out over a longer period of time
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    Page Sources

    1. Experian. "What Are the Different Credit Scoring Ranges?"

    2. New York State Attorney General. "Predatory Lending."

    3. Cornell Law School, Legal Information Institute. "Debt-to-Income Ratio."

    4. Federal Deposit Insurance Corporation. "Consumer Assistance Topics, Loans."