How to Shop for a Personal Loan

Good Debt Versus Bad Debt

A personal loan can be a great way to consolidate debt or tackle a home improvement project without having to pull out the plastic. Unlike credit cards, personal loans often offer fixed interest rates and fixed repayment periods -- usually three to five years -- which makes it easier to budget payments.

On the other hand, getting a personal loan can be frustrating, confusing, and even downright dangerous in some cases. Here’s how to shop for a personal loan:

When shopping locally, don’t take “no” personally. It’s always a good idea to check with the financial institution where you have your checking and savings account to find out what they offer. But don’t be surprised if the teller hands you a credit card application when inquiring about a personal loan. Those smaller loans simply aren’t that cost-effective for some financial institutions to offer. “It can be difficult to get a traditional bank loan for a smaller amount,” says Brad Lensing, CMO for which offers online personal loans for $2000 to $25,000. Credit unions may be more flexible on this point, so be sure to check with yours if you belong to one.

Empower yourself. You’ll be in a better position to find the right loan if you know where your credit stands. Get your credit reports and scores before you start shopping. (You can get your credit score and credit report summary for free using's Credit Report Card.) And because each application can trigger an “inquiry” into your credit, which can in turn lower your scores a bit, you’ll want to avoid the shotgun approach when you start applying. Instead, find the loan you believe is the best fit and apply there before you try elsewhere., for example, requires a minimum credit score of 640 while requires a FICO score of 660 or higher.

Renaud Laplanche, CEO and founder of, suggests you “look at the Annual Percentage Rate (APR) which is the total cost of credit.” But if you are comparing a personal loan to a credit card, he says you also need to keep in mind that “with the credit card there may be additional fees that come along later and don’t get included into an APR. The total cost of credit cards may be higher.” At, for example, fees are included in the APR.

Compare apples to apples.

Stay safe. At, we’ve heard from many consumers who applied for “quick cash” personal loans online, only to discover they had been sucked into a scam. Some were tricked into paying upfront fees in order to get loans that never materialized, while others discovered years later that the personal information that they had given on their application was sold to scammers who then harass them for debts they may not even owe.

Before applying for an online personal loan, check to make sure the website and company offering the loan is legitimate. Check with the Better Business Bureau and search for online complaints. (Remember many scammers change names frequently to avoid detection.) Avoid companies that promise loans regardless of your credit, as legitimate lenders will take your credit history into account. When you do apply, make sure you are only submitting information on a secure site (look for a lock in your browser) and for third-party verification services like Verisign.

Choose the right loan. Personal loans may offer repayment terms of 1 to 5 years. The shorter repayment period may not always be the best one for you, though. If you are consolidating credit card debt, for example, and you’ve only been making minimum payments, a three-year loan could raise your monthly payment significantly. That’s fine if you can afford the payment, but if your budget is tight you may run up new balances on your credit cards and defeat the purpose of the loan. If you choose a loan with no prepayment penalty, then you can always pay more if you have the cash to do so.

---'s Personal Finance Expert, Gerri focuses on financial legislation, budgeting, debt recovery and consumer savings information. She is also the co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights, and Reduce Stress: Real-Life Solutions for Solving Your Credit Crisis as well as host of TalkCreditRadio.comTalk Credit Radio. Reach Gerri at

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