The Guide to Bank Loans

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

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.