What are personal loan apps and how do they work?
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If you need to pay for a large purchase, consolidate debt, or cover an unexpected emergency, you might consider a personal loan. Many personal lenders have personal loan apps that make it easy to borrow money online without ever having to visit a bank. While personal loan apps are a convenient way to apply for a loan, they are not for everyone.
Read on to learn more about personal loan apps and how they work, where to find them, and some alternatives to consider.
You can also use Credible compare interest rates on personal loans from multiple lenders, all in one place.
What are personal loan apps and how do they work?
A personal loan app is a mobile tool that allows you to apply for a loan online without having to go to a traditional bank. Some apps streamline the loan process, and you can apply for a loan and manage it entirely within the mobile app. Other apps may require you to use the lender’s website on a desktop computer apply for a loan.
In addition to private loan Apps offered by banks, you can also access apps from online lenders and lending marketplaces. These apps usually work just like their website counterparts. You download the personal loan app, review your options, and apply for a personal loan. Once approved for a personal loan, you can make payments and manage your account from your mobile loan app.
Applying for a loan usually involves entering some personal and financial information into the loan application form. You must provide your name and contact information along with your social security number, annual salary, and desired loan amount.
The interest rate and repayment terms offered to you are based on your creditworthiness, with higher credit ratings usually resulting in lower interest rates.
Where can you find a personal loan app?
Most online lenders, traditional banks, and credit unions offer personal loans through their mobile apps. You can download these rental apps from the App Store for iOS devices and from the Google Play Store for Android phones.
It helps to know what you are looking for on these platforms. You can find a plethora of payday loan apps or cash advance apps that are very different from personal loan apps. Look for the app from your bank or favorite lender, or consider credible partners with personal lending apps like LightStream, Prosper, and SoFi.
You can Compare personal loan rates on Credible without compromising your credit rating. You can also use Credible to apply for a personal loan if you don’t want to download a personal loan app on your phone.
What you should look out for in a personal loan app
Many personal loan apps will ask you specific questions about how much you want to borrow and how you want to use the loan. Once you’ve entered your information, the app will provide loan recommendations based on your answers, and you can then choose whether or not to proceed with a lender.
Different loan apps have different features that you should consider. Here are some things to look out for when considering which personal loan app is right for you:
Compatibility with your bank
Personal loan apps must be linked to your bank account in order to fund the loan. However, some lending apps are not compatible with all banks and credit unions. Don’t give out personal or banking information to an app that isn’t compatible with your bank. If you’re unsure whether an app will work with your financial institution, ask a customer service representative at your bank if they’re an app partner.
Eligibility requirements for a personal loan can vary from lender to lender. For example, lenders might require your employer to do a credit check or direct minimum deposits into your checking account. Before using a personal loan app, think about what information you want to share.
How much you can borrow
Loan amounts are an essential consideration when choosing a personal loan app. For example, Best Egg offers personal loan amounts between $2,000 and $2,000 $50,000 while SoFi makes loans of up to $100,000. It’s important to only borrow what you need so you don’t have to pay interest on a larger amount.
Interest and Fees
Funding your loan is one thing, but how much is the loan costing you in interest and fees? If you have good credit, lenders can offer you competitive interest rates.
On the other hand, you could face high interest rates and fees if your credit score is not optimal. Some lenders charge processing fees for processing a loan, while others may charge a prepayment penalty for paying off your loan early. Make sure you understand all fees before proceeding with your loan application.
The time it takes to fund your loan will vary depending on your lender and how quickly your bank processes the transaction. Some lenders offer to deposit your money directly into your bank account by the next business day. LightStream says it can provide the funding on the same working day, while SoFi may take up to three business days to fund your loan. Before applying for a loan through a mobile app, website, or even in person, make sure your lender can fund your loan in a timeframe that’s convenient for you.
Pros and cons of personal loan apps
As with any financial product, it is advisable to weigh the pros and cons of personal loan apps before you start using them.
Benefits of personal loan apps
- Helping you cope with a financial commitment — A personal loan app can help you get the money you need when you’re facing a financial burden. For example, Personal loans can help when you need to replace a broken water heater or face an expensive medical bill.
- Convenience – Personal loan apps offer convenience, especially if you prefer working on a mobile device. It’s quicker and easier to apply for a loan through an app than completing a traditional application at a bank’s loan agent.
- Fast financing — Need the money fast? If you are approved for a personal loan, some lenders will do so directly Deposit your loan funds the same dayor within a few business days.
Disadvantages of personal loan apps
- May be associated with high interest rates — If you have little or no credit history, personal loan apps may offer loans with high interest rates (though not as high as payday loans or cash advance loans).
- May charge fees — Keep an eye on all the fees that may come with a personal loan offer, including processing fees, late payment fees, and prepayment penalties. Above all, make sure that you can comfortably afford the loan payments including interest rate and fees, otherwise you could hurt your financial situation even more.
- Not always compatible with your bank — You may find an excellent personal loan offer, but the app won’t work with your bank or credit union. In this case, talk to your bank about your options. You should consider applying for the loan on the lender’s website if you are confident that they can transfer your money to your bank seamlessly.
Personal Loan Apps vs Payday Loans
If you search for personal loan apps on Google Play Store or App Store, you will probably come across payday loan or cash advance apps. While both personal loans and payday loans can get you the money you need quickly, there are some key differences that you need to be aware of between the two types of loans.
Payday loans often appeal to borrowers who may not be eligible for traditional personal loans. That’s because many payday lenders make it easy to borrow money without a credit check and, in some cases, without a bank account, as long as you have a prepaid card account.
Personal loans are generally the better option, as payday loans usually come with fees that correspond to significantly higher interest rates – sometimes up to 400%. Additionally, most payday loans are due in full on your next payday. If not, additional fees will be added to the loan balance. These conditions can make it almost impossible to repay a payday loan, and it’s easy for borrowers to get caught in a cycle of debt.
On the other hand, the average Interest rate on a personal loan is 9.09% for a 24-month loan federal reserve. You also have much longer to pay off the debt — traditional personal loan terms typically range from one year to 10 years.
Additionally, many payday lenders don’t typically report your on-time payments to the big credit bureaus like their personal loan counterparts. So if you want to build a strong payment history to improve your credit profile, a personal loan is a better option.
Credible leaves you easy Compare personal loan rates from different lenders in minutes.
If you think personal loan apps aren’t for you, consider these alternatives:
- Classic Personal Loan — You may find it more convenient to apply for a traditional personal loan through a bank, credit union, or online lender rather than using an app. As with a personal loan via an app, you pay back your loan in fixed monthly installments over several years.
- 0% APR Credit Card — If you have good credit, consider applying for a credit card with an introductory offer of 0% APR for 12 months or more. If you pay off your credit card balance before the end of the introductory period, you will not be charged any interest. Otherwise, you could incur deferred interest costs from the original purchase date.
- Borrow from friends or family — Sure, asking loved ones for help can be embarrassing, but they can lend you the money you need with little or no interest. Just make sure to pay off the loan to ease any uncomfortable feelings and keep your relationship intact.