How Do I Secure a Personal Loan?

If you find yourself in an emergency and in need of some quick cash, a personal loan may be your only option. The ability to get a personal loan depends mainly on your credit history and income.

There are two types of personal loans, which are available from banks, credit unions, credit card, and relatives or friends. Secured loans use collateral such as home equity or a car title to help you get lower fees, a better repayment schedule and lower interest rates. Unsecured loans do not require collateral, but they come with a much higher interest rate.

Check your credit score first

Before you start looking for a loan, find out your credit score, as most lenders will pull this as a first step. You can get a free copy of your credit report from, and pay a few extra dollars to see your credit score.  You may also be able to get a free credit score from your bank or credit card issuer.  Ideally, you want a credit score of 720 or higher to qualify for a better interest rate. You should also check your credit report and make sure it is free from inaccuracies before applying for a loan.

Banks, credit cards and credit unions

To get the best interest rate regardless of the type of personal loan, shop around. Start with banks, credit cards and credit unions with which you already have relationships.  They may be more sympathetic to your needs. For example, credit unions may look at a member’s overall financial situation rather than basing their decision solely on a credit score.

When using a commercial lender, ask about the repayment plan before signing on the dotted line. Are the payments fixed or variable?  You’ll also want to know how the loan is disbursed—will you receive your money in one lump sum or will it be disbursed over time?

Peer–to-peer lending

Another option for a personal loan is to take advantage of an online peer-to-peer (P2P) lending sites such as or  Make sure you are working with a legitimate site that is backed by the FDIC, as there are many scam sites out there as well. Legitimate sites use your credit score to decide your eligibility. Note that not all P2P lending sites offer personal loans, so be sure to check what’s available before you start applying.

Family and friends

Family and friends can also be a source of money, but you have to consider the pros and cons very carefully before taking this route.  Friends and family members might not check your credit score, but if you fail to pay back the loan, your relationship will be put into jeopardy along with their financial security.

If you are taking a loan from a family member or friend, make sure you do the following:

  • Put all the terms in writing.

  • Ensure that you are being charged a reasonable interest rate.

  • Have proper documentation in case of a dispute or even the death of one of the parties.

  • Don’t take money from a relative or friend you know can’t really spare it.

Regardless of which type of lender you use, make your payments on time.  If you don’t, you risk ruining your credit and, if you are working with a secured loan, losing your collateral.