A personal loan is an easy way for you to attain money you need for whatever reason. Most people get a personal loan to pay off credit card debt. After all, credit cards have an interest rate between 17 and 30 percent. A personal loan can be attained with an interest rate of seven to 10 percent. That’s a significant amount of money you’d save with a personal loan.
The problem you’d run into with these loans is they don’t always come with the lowest possible interest rate. That’s because they are considered non-collateralized loans, unlike a mortgage or auto loan. They are still a worthwhile venture if you want to get out of debt or need a loan that you can’t get from a collateralized loan.
In the past, people had to go to their local bank or credit union to attain a personal loan. Today, the Internet makes it easier to attain one. There’s also the option of payday loans, but these should only be your last resort. What’s the difference between the three options?
While it’s best to go through your local financial institutions first, it involves meeting the loan officer to talk about the loan and look over your finances. They can offer suggestions about less pricey alternatives like a line of credit. When the loan officer personally knows you, they’re more inclined to provide you with the best deal, especially if they know you’ll be approved.
Banks will also provide you with the money as quickly as possible. You could even walk in, ask for the loan, be approved and get the money that day. Banks tend to have flexible loan terms than you’d see with peer-to-peer lenders.
Drawback? They tend to want you to have a high credit score to be approved, usually around 700.
Credit unions are not as demanding when it comes to credit worthiness and tend to offer a lower interest rate. However, they generally only offer these loans to current customers.
A great thing about getting a loan through a local financial institution is that there tend to be no loan origination fees attached to them.
There are many peer-to-peer lenders popping up on the Internet – Lending Club and Prosper, to name a couple. These are longer, but it can take up to a week to get the money you need. These loans are often easy to borrow, even giving money to people with less than ideal credit. While some lenders will consider buyers who have a 600 credit score, the cutoff tends to be around 640.
Interest rates tend to be lower than traditional banks, and there is some flexibility with the repayment terms. A number of online lenders use fixed-term loans and are shorter than what a bank can provide you. A bank could offer you a loan for five years whereas an online lender tends to stick with around three years.
To qualify for a loan, you need to visit the site you want the loan from, fill out their loan application and provide them with the necessary documentation to get the loan. Lending sites tend to have loan origination fees, which range from 0.5 to nearly five percent of the borrowed amount.
When it comes to personal loans, the last place you want to turn to is a cash advance or payday loan lender. Why? These loans are only good for short-term situations – where you can pay the money back in two weeks or less. If you don’t have great credit but need money to address a big bill – electricity, gas, vehicle repairs, etc., then this may be the route to go.
Problem? The price to get one can be more than what you’d be willing to pay. You could find yourself paying back more than 100 percent of the loan in just interest. They also come with a huge origination fee. There are only two good things that come with these loans:
Your credit score is going to play a huge part in getting the best interest rate on the loan you need. Make sure you improve your score before you apply for a loan. Make timely payments and bring your revolving credit down before you apply. Be sure you have all the information you need such as paycheck stubs, W-2 forms, verification of address and monthly debt obligation documents.
Your goal is to get a personal loan as quickly and as painlessly as you can.