There are a multitude of financial tools out there to help you achieve your goals; one of the most popular and flexible options is the personal loan. Personal loans can be a great way to consolidate your current credit card debt, fund a new venture, or help you pay off other high interest rate bills.
If you’ve considered the options and feel certain that a personal loan is the right choice for your goals, the next step is to ensure you have the highest chance of approval by learning more about how personal loans work and how to apply for them.
WHAT IS A PERSONAL LOAN?
A Personal loan offers the easiest and fastest way of raising cash for current financial needs. Unlike other types of loans, you don’t need an excellent credit rating, a six figure income, or collateral to apply for a personal loan. In fact, personal loans are mostly used to meet basic expenses relating to vacation costs, household extensions, and repairs. However, they can also be used to consolidate debts such as credit cards or cater for one-time expenses such medical bills funeral and wedding costs. These loans usually come with two-to-five year’s term limits with an interest rate of between 8.5% and $18.5%, depending on credit rating. While most come with fixed interest rates there are exceptions that come with fluctuating interest rates.
PERSONAL LOAN ELIGIBILITY
Eligibility for a personal loan is is usually based on a combination of credit history and current debt to income ratio. These two factors are often combined into what is commonly referred to as a ”Credit score”. Borrowers with good credit scores stand a higher chance of securing personal loans. However, this does not mean that lenders always turn down applications with lower credit scores. Lower credit scores will most of the time limit the amount of money one can access. Furthermore, a strong credit score can boost your chance of getting a personal loan at a much lower interest rate. A good credits score for personal loans is one that ranges between 725 and 759. A score of between 760 and 859 is considered excellent and would most of the time command lower interest rates. Another important thing that lenders look at is the applicant’s source of income. A reliable source of income will increase your chances of a successful application. Lenders also look at monthly debt payments that should be at least, below 43%, in addition to other financial obligations such as bills, alimony, or child support. Data points on college grade point or career may also be used to ascertain one’s ability to handle a personal loan. The idea behind this background check is that some careers or jobs are stable than others thus placing one in a position to repay their loans on time. Other factors considered include how one plans to use the funds, social media presence or how one contacted the lender.
WHERE CAN I GET A PERSONAL LOAN
Local community banks and credit unions are some of the best financial institutions for personal loans. Credit Unions can be an exceptional resource for low interest rate loans as they are not in the business of making profits. Online lenders such as Prospects and Lending Club also offer personal loans at competitive rates. Their rates are usually lower than those offered by banks because they have fewer physical assets and fewer expenses. Pawn shops also offer personal loans in exchange of valuable items such as jewelry electronics or artwork. The merchandise in this case acts as a collateral.
READ THE FINE PRINT
Personal loans are usually paid over a specific period. Failure to do so could result in lawsuits as there are no collaterals involved for a lender to use to recoup his investments. There are also scammers who use false advertising to lure people into false agreements such as having to pay an ‘advance fee’ for loan processing. Carrying out a background check on a lenders terms is essential if you want to avoid any hidden costs that may come into play especially with low-interest personal loans. Many lenders who offer personal loans at low-interest rates charge significant fees that show up in the overall amount folded in monthly payments. Understanding the terms of a personal loan and demanding answers on unclear matters is essential if one is to avoid future disagreements with a lender. One of the things to look out for include prepayment penalties, which some lenders charge in instances where one pays off the full loan amount early. Some lenders automatically charge payments from checking accounts. In this case, one should consider setting up a low balance alert to avoid overdraft fees from a bank, if the inevitable happens.
1. https://www.lendingtree.com/personal/what-are-personal-loans-used-for/ 2. https://www.myfico.com/credit-education/whats-in-your-credit-score/ 3. https://www.thebalance.com/how-your-credit-score-influences-your-interest-rate-960278 4. https://www.gobankingrates.com/credit/credit-report/read-credit-report/ 5. https://www.finder.com/new-employee-personal-loans 6. http://www.randelltiongson.com/factors-that-affect-your-personal-loan-application/ 7. https://www.finder.com/personal-loan-scams