Life is filled with suddenness. Here, you are going about in your usual routine. Like going to work, earning your paychecks, paying your bills – then all of a sudden something unexpected occurs which happens to come with a large price tag. Let’s say, you need to pay your children college fee, wedding in a family or maybe a luxurious vacation. Here a personal loan can really help you out.
A personal loan is something which is deputed for your personal expenses and comes in two types:
Secure loan: This is something where you have some collateral like house or a car to back the loan up. The moneylenders like banks or finance companies will hold the deed until the loan has been paid with full interest including all applicable fees. You can also put up stocks or any other personal property you have to secure a loan. The best thing about secure loans is that they can help you in obtaining large amounts of money. They offer lower rates with higher borrowing limits and longer repayment conditions if compared with unsecured loans.
Unsecured loan: This is something where you don’t need anything pledged as a security for repayment of a loan. Other things included like credit card purchases and education loans. There is a risk for moneylenders in this loan because they have no property or any assets to recover if the borrower goes default. In this case the interest rates are usually high. The Lender believes that you will be able to pay the loan based on your financial resources. Some other criteria include your character, capacity and capital.
Bad Credit: is a serious issue in getting a loan. You are viewed as a high risk customer who might fail or leave the moneylender with nothing. Low credit scores can negatively affect every side of your life resulting in also having an effect on your health. You are either regularly late on your car payments or you have crossed your limit on your credit cards. It’s virtually impossible to purchase anything if you have bad credit score. On bad credit scores you can be denied housing as well. It can cost you thousands of dollars in paying back your loan either for your car, house to insurance premiums.
Until and unless you raise your credit score, you won’t be able to fit in the standard lending loan procedures which the traditional banks or financial agencies follow. You need to stop applying for credit. Cancel any unused credit cards that you own. This will decrease the chances of you falling victim to a fraud.
Here are some alternatives which can help you in getting a personal loan even if you have bad credit.
- Home Equity Line. It is something where the money lender uses the borrower’s house as security. Off course this will put your property in danger if you won’t be able to repay the debt back. But considering if you do have a steady income and are disciplined to pay the loan back, this can be an inexpensive option, despite your credit score.
- Appealing to a Co- Signer. You can always apply for loans at any banks or money lending agencies in person or online. After filling out a loan form on different bank websites, loan representatives will call you to discuss your options. You do need to provide your personal information like evidence of your employment, financial history and your current situation. How much money do you need and what for. Here, banks and agencies do need a co-signer if you have bad credit or if it’s your first personal loan. A Co-signer is a person who has a good credit score and is prepared to co-sign a loan with you. One who knows your current situation and has a firm belief in your ability to repay the loan. One thing to keep in mind is that if you don’t repay your loan or default, the moneylenders will look to your co-signer for the full payment.
- Peer to Peer Loan. Around since 2005 an online rostrum that allows you to take money from a person instead of an institution, this lending method has grown popular because its win-win for borrowers that pay low interest and lenders who receive high interest rates. The procedure is you post loan which includes the money you want and why. The investors study the loan listings and choose whatever meets their criteria. Considering your credit is still a factor, the moneylender or an investor maybe more understanding to provide you with a loan rather than a traditional bank or an agency. The good thing is, these days you can take for as little as 6.5% and earn a return of 10.5%.
- Loan from friends or Family. If banks, agencies or online peer won’t lend you a loan, maybe your friends or family will. If they do lend you, always treat that loan as a serious business agreement which is to be documented and legally recorded. This should be your first priority. This should include all interest rates, payment terms, anything pledged and what will happen if you fail to repay the loan back. One more thing, family/friend loan should benefit everyone. This should be your last resort because you don’t want to risk any close relationships over money.
It is always important to know your credit score before you apply for a loan. Always research about minimum requirements of moneylenders in your area for your personal loans! First priority should always be your bank. Let’s say, if you have been with the same bank for years, you should always contact their loan departments first. Credit unions are nonprofit organizations which may have more workable lending procedures and can offer you a small personal loan.
You should always shop around before you apply for any specific loan as interest rates and loan fees differ between lender to lender. Some other important things which need to be considered are fixed interest rates and early payment penalties. Finance institutions or moneylenders usually begin a loan with low interest rates but later on it goes higher and higher. This is just to attract the loan applicants. Before you even apply for a loan always find out if the interest rates are fixed or will they change over time.
Early repayment penalties are important too. You should always try to pay off your personal loan before you reach the end of your loan term. Though, some financial institutions may charge you additional fees in paying your personal loan earlier than you were expected too.
Always limit your loan applications as it causes an inspection into your credit. Each inspection lowers your credit score by a little. Don’t apply for every loan you see or come across. Only apply when you trust the moneylender or you are happy with the standards and requirements which they have set. Also making payments on time will get you in good books of moneylenders and will show that you are a sensible borrower. Try residing at one address for some time as that gives a good impact to the lenders.
Life is unpredictable and unplanned expenses occur now and then. One should always be prepared for them by understanding the ins and outs of personal loans. So pay your children fees, go on a luxurious vacation or buy a house even. You don’t have to be frightened by the unexpected costs life throws at you.