Personal Loans
Applying for personal loans are different from student, car and home loans. While you might think all loans are personal, aside from those used for businesses, they often have different rates and requirements.For instance, personal loans are typically unsecured, which means there is no collateral to obtain funds. Conversely, borrowers who fail to repay auto or home loans will have the vehicle or property repossessed by the lender as payment on the defaulted loan.
Likewise, student and home loans have lower rates than personal ones. Learn more about these loans and how to obtain funding.
Why You May Need Small Loans
Borrowers may apply to the best personal loan lender for funding for a number of reasons. Small loans can cover emergencies and special events.Some incidences when you may need a loan include the following:
- Debt consolidation, collection agency or tax debt – Personal loans can pay off former debts and give you a better interest rate than the existing debts.
- Medical and vet bills – Whether for humans or pets, health care fees can rack up quickly.
- Student debts – While loan rates for undergraduates are usually lower than other loans, rates for graduate students may not be and they may consider private loans with lower rates.
- Home repairs – If your furnace breaks or your roof leaks, then you need funds fast.
- Weddings or divorces – Changes in marital status can become expensive when it comes to planning a big party or covering legal fees.
- Vacations and holidays – Whether for travel or gifts, small loans can cover the costs of extravagantes.
- Moving expenses – From truck rentals to storage fees, relocation can cost more than what is in your savings.
- Funeral costs – Laying a loved one to rest can cost thousands of dollars.
Conversely, borrowers may use personal loans for expensive items like appliances, computers, furniture and even jewelry. For instance, a family may need a new refrigerator sooner than they may be able to save for its full cost.
How to Find the Lowest Rates for Personal Loans
Even the best personal loan may have higher rates than funds for a secure loan. An auto loan, for example, uses the vehicle as collateral and will often have a lower rate than an unsecured loan for the same amount for the same purpose.However, there are ways to personal loans with low-interest rates:
- High credit score – Borrowers with high credit scores will receive the best rates and lending terms. Individuals with poor scores are seen as risky and will, therefore, pay a higher rate.
- Co-signer – If you have less than ideal credit or lack of income to show you can repay a loan, then having a co-signer, such as a parent or spouse, may show the best personal loan lender that you are less risky and, thus, may be eligible for a lower rate.
- Shop around – Regardless of your creditworthiness, the best method to obtain a great rate is to look into multiple lenders and compare their terms. While banks may be the first place to check, look into credit unions, online lenders and other types of lenders.
Likewise, look at what collateral you have. You may be able to levy your home or other property for a better rate.
Getting a Personal Loan With Bad Credit
If you do have poor credit, then you may need to provide collateral to get a loan. This may be in the form of property, such as a lien on your home or vehicle. However, if you fail to make payments as dictated by the terms of the loan, then you risk having your property repossessed.Personal Loan Process
After locating the best personal loan lender for your needs, you will need to complete an application. Lenders will look at your credit history and score as well as your income. If you are applying with a co-signer, then the financial institution will also look into his or her creditworthiness and earnings.Different lenders have different terms and requirements. Factors to keep in mind when trying to get the best personal loan include the following:
- If the lender has a minimum or maximum loan amount
- The length of time of the loan
- Additional fees, such as an origination fee for establishing the loan, credit check charges or an early payoff penalty
- If the interest rate is fixed or variable
- If you can afford the minimum monthly repayment
