When you find yourself in a situation where you desperately need money, you need to be careful and not jump at the first opportunity that comes along. Carefully consider all your options. Luckily, there are a few ways to get out of a financial hole, from mortgages and credit card advances to personal loans and peer-to-peer lending. Here, we will go into more detail when it comes to personal loans.
What is a personal loan?
A personal loan is a cash advance that can be used for all kinds of personal expenses. The money can be used for purchasing a new car, organizing a wedding, renovating your house or consolidating a debt, among other things.
Types of personal loans
Personal loans come in two varieties – unsecured and secured.
An unsecured personal loan means that you are not required to put up any collateral. Seeing as how the lender has no assets to seize in case you don’t pay them back in time, these types of personal loans may be hard to get. However, there are other ways the lender can take action. They can report your late payments to credit bureaus, hire a collection agency or sue you.
The other kind is secured personal loans. This means that your car, motorbike or house can be used as collateral. The lender has the right to take away this asset from you if you fail to meet your obligations.
The amount of money
The amount of money you can get depends on your credit score, income, other debts you might have and the lender you choose. Unsurprisingly, the higher your income and better your credit score, the more money you can receive. Personal loans can range anywhere from $1,000 to $100,000. However, some banks have a cap on how much money can be borrowed. Unlike a revolving credit card balance, you can’t keep borrowing from the loan over and over again. You are given the money up front and are required to pay it back in monthly installments.
You cannot forget about the interest rates. Checking your credit history can also help the lenders determine the interest rate on your loan. Keep in mind that the secured personal loans have a lower interest rate because the lender has been given some sort of assurance and, therefore, they are risking less. Typically, rates range from 5 to 36 percent; of course, it all depends on the lender and your credit. If your loan term is longer, you are bound to pay more interest. Some other fees to consider are origination fees and prepayment penalties. Some lenders might charge you for the cost of processing the loan. This can range from 1 to 6% of the loan amount. Moreover, if you pay off your loan early, you might have to pay a fee because the lenders will not be receiving the interest they expected.
The repayment period
Once you get the loan, you will have a set period during which you must repay it. This period can be anywhere from 12 to 84 months. If you opt for a longer period, the monthly amount of money you have to pay will be lower. However, as previously mentioned, you will pay more due to the interest rates. It’s important to pay on time as that will positively affect your credit score.
Finding the right lender
The first place you will probably turn to is your bank. However, make sure to go to several banks to see which one offers the best benefits. Additionally, there are even online platforms like Our Money Market, for example, where you can be matched with a lender whose terms best suit you. Credit unions and consumer finance companies also offer personal loans. However, be wary of various scams that can lure you into a fake agreement. If anyone asks for money up front or guarantees approval without looking at your credit score, it’s best to stay away from these offers. Always opt for a reputable source that you vetted and researched beforehand.
Applying for a personal loan might sound like the best idea to you. However, make sure to consider all factors before signing on the dotted line.
Mike is an Australian IT support professional. He’s working with companies that outsource their IT maintenance. He often writes about technology, business and marketing and is a regular contributor on several sites.