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Money Management Tips and Finance Basics

The Guide to Bank Loans

Before borrowing money, determine which type of loan is right for you.

By Carolyn Bigda
Illustration of woman catching raining money in her umbrella Wesley Bedrosian

Personal Loan

Best if: You don't own a home but need money fast.
 The benefits: You can use this loan for just about anything, from medical bills to your daughter’s sweet-16 party. The amount you can borrow depends on the institution, and you can receive the funds the same day. There’s a set time period for repayment, and if you negotiate a fixed interest rate with your lender, you will reduce your risk of accumulating ever compounding interest debt.
 Worth knowing: Apply at a credit union for the best deal. These lenders tend to offer lower rates (around 2 percent less) than banks do. True, you have to qualify to join a credit union, but membership rules have loosened (you may be eligible simply based on where you live or work, for example). To find one near you, go to cuna.org.

 

Peer-to-Peer Lending Website

Best if: You want to start or expand a business.
 The benefits: Sites such as Lendingclub.com and Prosper.com are alternatives to bank loans, connecting borrowers with people willing to advance a preset sum of money. On the table: three-year, fixed-rate loans of up to $25,000 that you can usually receive within a few days after securing funding. These lenders are often more willing than a bank to dole out the cash: “Investors want more than a return on their money,” says Curtis Arnold, a coauthor of The Complete Idiot’s Guide to Person-to-Person Lending ($20, amazon.com). “They want to help someone.” You’ll also pay less: Interest rates can be several percentage points lower than rates at a bank.
 Worth knowing: It helps to have a solid business idea and a healthy credit history. Lendingclub.com requires a minimum credit score of 660, and Prosper.com expects 640. Be ready to pay a fee of 0.5 to 3.75 percent of the total loan. The amount you borrow also plays a role in the interest rate; keep it at or below $10,000 for the best deals. Larger sums are possible but less common, so those loans typically carry higher rates.

 
Read More About:Planning

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