A personal loan can be a massive lifesaver when you are in an emergency and don’t have the money to pay for it. It may also come in handy when you want to buy a high-ticket item but don’t have enough money saved in cash.
Many types of personal loans are available from different lenders, and figuring out where to apply can be overwhelming. Before beginning the application process, it’s helpful to consider a few things, as this will point you in the direction of where to apply. Doing this allows you to apply for the best loan types that suit you and avoid wasting time applying for loans you don’t qualify for.
Your Credit Score Determines The Loans You Qualify For
Your first step is to establish your credit score since your rating influences the lenders who will loan you money and the terms of your loan. Credit rating is calculated based on the five factors below:
- Payment history
- Amount of money you owe
- Length of credit history
- Credit mix
- New credit applications
Lenders want to know your credit score before offering you a loan because people with lower scores are considered a risk.
Traditional lenders like banks usually offer loans with low-interest rates and favorable terms, but these are generally only given to folks with high credit ratings. If your credit rating is high, which means you score 600 or above, applying to a bank should be your first option.
While people with low credit scores are unlikely to qualify for personal loans from banks, other lenders offer bad credit loans designed for these individuals.
The Type of Loan That Suits Your Needs
After determining your credit score, you must decide on the type of loan that best suits you.
Traditional lenders typically offer two main personal loan types: secured and unsecured.
Secured loans require you to provide collateral, but the interest rates are lower since they’re less risky. If you prefer to apply for an unsecured loan, you don’t need to put anything down as collateral but expect to pay a higher amount in interest.
Bad Credit Loans
There are several options if your credit score is low and you’d like to apply for a bad credit loan. Bad credit loans have higher interest rates and less favorable terms, so it’s important to exhaust all other options and be sure that you can repay them.
Like personal loans from traditional lenders, bad credit loans can be secured or unsecured.
Pawn shop loans are an example of a secured bad credit loan since you must provide collateral to apply. Popular items used as collateral for pawn shop loans include electronics, power tools, and musical instruments. To apply for a pawn shop loan, take your item to the pawn shop for evaluation. The dealer will evaluate your item and offer you a loan based on 25% – 60% of the item’s resale value.
Along with interest, you may be charged storage and insurance fees, and you usually have up to two months to repay your debt. The dealer will sell your item to recover the loss if you cannot.
If you’d prefer not to take a secured loan, you can opt for a Payday loan, an example of an unsecured loan. This loan type is easy to apply for – you need to be over eighteen and have a valid ID document, bank account, phone number, and proof of address. You will also need to prove that you earn an income, as the amount you can borrow is based on your income.
Once approved, expect the funds in your account within a day. Payday loans have an even shorter payment period – you’re expected to pay within two to four weeks.
Costs Associated with the Loans
Apart from the loan amount, you must remember that you will be charged fees and interest, so before signing for a loan and assuming the responsibility to repay it, make sure you know how much you owe in total.
While your credit rating plays a significant role in how much interest you will pay, you must also take into account where you reside, as interest rates vary by state. The interest on loans in Summerville SC, for instance, will be different from the interest charged on loans in New Jersey.
Before applying for a personal loan, you must consider your credit rating, as this will determine the loan type you will qualify for. Review different loan options to find the best one for you, and ensure you are familiar with all the costs associated with the loan.