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This 7-Step Guide Will Ensure You Choose a Personal Loan Provider You Can Trust

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 Finding a loan provider you can trust can make all the difference
Sarah Badani
Sarah Badani
Jul. 12, 20213 min read
Getting a personal loan can be a long and complex process. Ideally, your personal loan will help you to make the purchases you need or cope with emergencies and not be a source of debt and anxiety.

Although there's lots to consider when finding the right loan, one of the most important aspects is finding a reliable, trustworthy lender from the range of top personal loan providers. A responsible lender will connect you with a loan that matches your needs, support you through the application and repayment process, and be clear and upfront about their fees and charges.

How to Apply for a Personal Loan with a Reliable Lender

To find a reliable lender, first to lay the groundwork so that you can spot a reliable, or untrustworthy, personal lender. Here are the steps you have to take to prepare for applying for a personal loan so that you can identify the right personal loan provider for your needs.

1. Calculate how much you need to borrow

When you take out a personal loan, it can be tempting to borrow a bit more than you need. It’s important to remember that you’ll be paying for every dollar that you borrow, so even an extra $100 could end up costing you a lot more in interest. A trustworthy lender won’t encourage you to borrow more than necessary.

At the same time, you don’t want to borrow too little and find that you don’t quite have enough to cover the purchase you need to make.

2. Research loan providers

Do some research and read reviews about loan providers for your circumstances. Remember that the right loan provider for your next-door neighbor isn't necessarily the right one for you, even if they are a reliable lender. Here are some factors to consider in your research:

  • Loan providers that serve borrowers with your credit score. If your credit score is low, look for lenders that specialize in bad credit loans
  • Your reasons for the loan—some lenders may have restrictions on your loan purpose
  • Whether you want fixed or variable payments
  • Whether you want a secured or unsecured personal loan
  • The length of the repayment term—do you want a long-term loan, a short-term loan, or a micro-loan for just a few months?
  • Whether you can borrow the amount you need—different lenders have different minimum and maximum loan amounts
  • Whether you can get support if you need to suspend payments for a short time

As well as finding the right lender for your needs, there are important signs to look for that indicate a trustworthy lender that you can rely on. For a start, never go with a lender that isn’t approved by a regulatory body and complies with all national financial regulations. When you’re choosing an online lender, you should also read customer reviews. You can expect to find the odd negative review, but if the majority of the reviews are unhappy with the lender, or you see the same complaints occurring again and again, be warned. Finally, every responsible online lender should have a high level of security surrounding the application and payment process.

3. Check your credit score

When applying for a personal loan, your credit score is the single most important element. Your credit score affects whether you'll get lower interest rates, if you'll qualify for special financing deals, and whether or not you'll be eligible for a personal loan at all. A reliable lender runs a credit check to verify that you can repay your loan.

Credit scores generally appear like this:

  • Excellent: 720+
  • Good: 690-719
  • Fair or Average: 630-689
  • Poor: 300-629

If you have an average or poor credit rating, you might want to take some time to build up your credit score so that you can apply again and qualify for better loan terms.

4. Check your debt-to-income ratio

The other significant factor in qualifying for a personal loan is your debt-to-income ratio. This means how much debt you carry in relation to your income.

To calculate your debt-to-income ratio:

  • Add up all of your total monthly debt payments, including mortgage debt, credit card debt, and student loan debt
  • Add up your total monthly income, such as your paycheck, dividends, or income from real estate
  • Divide your cumulative monthly debt by your monthly income. The result is your debt to income ratio

For example, if you have monthly debt of $2,000 and a monthly income of $8,000, your debt-to-income ratio is 25%. The maximum debt-to-income ratio you should have is 36%, and a debt-to-income ratio of 20% is considered very good.

If you have a high DTI ratio, be very wary of lenders that are willing to offer you a loan. Double check that they aren’t charging you sky-high fees to cover the risk that you may default.

5. Gather the information you’ll need

You’ll speed up your personal loan application if you gather together the documentation you’ll need to provide. It will help you answer questions faster and means that you’ll have everything in one place when it’s time to send in your documents. You’ll generally need to find:

  • Proof of identity
  • Proof of income
  • Proof of employment
  • Documentation about your existing debts
  • Your mortgage and home ownership papers

A lender that doesn’t ask to see your supporting documents is not to be trusted.

6. Apply for a pre-approved offer

Most lenders allow you to apply for a pre-approved loan offer. This involves a soft credit check, which doesn't affect your credit score, instead of a hard credit check. Although it's not a guarantee of your final loan terms, it will give you a good idea of the rates and terms you'll get from each lender. The process of applying for a pre-approved loan offer also gives you a chance to see if the lender is helpful and supportive during the process.

7. Read the fine print

Before you choose one personal loan lender, take the time to read the fine print. Some lenders have hidden fees, like origination fees, which add to the total cost of your loan. Others have prepayment penalties if you repay the loan early, or one-off loan arrangement fees.

Red Flags When Looking for a Reliable Loan Provider

Unfortunately, not all lenders are reliable or trustworthy. Keep an eye open for any of these red flags—if you notice one or more, it’s a clear sign to stay away:

  1. Unreasonably high interest rates. If you compare a few lenders for the same loan amount and repayment term, you'll notice if one set of interest rates is markedly higher than the others.
  2. Unexpectedly low interest rates. It might sound odd, but very low rates can also be a warning sign. If the interest rates quoted don't seem to match the general average, it could be a sign that the lender makes up the difference with high hidden fees.
  3. Opaque loan costs. If the lender isn’t transparent about the cost of the loan, it’s a sign that they are hiding something.
  4. No checks on your ability to repay the loan. If the lender doesn’t run a credit check and verify that you can repay the loan, it’s a clue that they intend to cover their risk with very high fees and rates. 
  5. Poor customer reviews or past customer complaints. If there are a number of complaints about the same issue, it’s a warning sign.
  6. High-pressure sales. This is where the lender pressures you to borrow more than you originally intended.
  7. Interest rates that are not monthly. Lenders that charge high rates and fees often try to hide them by quoting interest rates per week or per day, instead of per month so that the rates appear to be lower than they really are.
  8. Demanding access to your bank account. Many lenders offer you the option of connecting your bank account so that you can make automatic payments. But a predatory lender could insist that you provide access to your account, and then make extra withdrawals that force you to pay overdraft fees. 

Choose a Trustworthy Personal Lender for a Positive Borrowing Experience

A reliable personal loan provider is the key to a positive borrowing experience. It's important to choose a loan provider that will help you achieve the quality of life that you need and deal with emergencies without crippling debt.

Sarah Badani
Written bySarah Badani

Sarah Badani has extensive research and review experience in the finance industry. With a degree in psychology and education, she brings a level of depth and understanding to her writing along with her own flavor to spice up each topic in a unique and inviting way. She writes for BestMoney and enjoys helping readers make sense of the options on the market.

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