Life can drop expensive surprises into our laps that we might not always be financially prepared for. Maybe your car broke down and requires a new transmission, or perhaps your rent is due right before your next paycheck comes in. Or maybe your high-interest credit card bill is through the roof and you just need some extra money to pay down your outstanding balance.
There are seemingly endless things that can happen in life that will require some extra money to cover the costs. If you don’t have any money saved for a rainy day, you could find yourself in a financial predicament.
But there may be a way to cover these unexpected costs even if you don’t have a financial cushion to fall back on – a personal loan. With a little financial help, you can get the cash you need to pay for whatever pressing expense you’re faced with.
What is a Personal Loan?
These types of loans come with a fixed interest rate that varies depending on the lender and your credit score. Generally speaking, interest rates tend to be lower for borrowers with higher credit scores. Personal loan amounts typically range from $500 to $100,000 which is repaid in monthly installments.
Wondering how to get a personal loan? Here are a few things you should consider when looking for the right loan for you.
Secured Vs. Unsecured Personal Loans
For the most part, personal loans are typically unsecured loans, which means they usually don’t require any collateral to secure the funds loaned out. This is different than secured loans, such as auto loans or mortgages, which require collateral (ie. a car or house) to secure the loan.
However, there may be times when personal loans are secured, especially if the borrower’s financials and credit score aren’t up to par. Lenders might offer you a secured personal loan if you’re considered to be a risky borrower. With collateral on the line, lenders will be more protected in case you default on your loan.
If you are willing to use your home or vehicle as collateral, you might be eligible for personal loan qualification even if your credit rating is suffering. However, it’s imperative that you understand that you could lose that collateral if you are unable to make your loan payments.
How to Get A Personal Loan For Your Needs
In order to secure the best personal loan, there are specific measures you need to take in order to ensure you’re getting the best possible service. Here are some steps to take to obtain the ideal personal loan product for you.
Check your credit score – As already mentioned, a high credit score can help you not only get approved for a personal loan, it can also help you secure a lower interest rate. You can save a great deal of money by paying less towards interest.
Find out what your credit score is by pulling your credit report (which you can do for free once a year). If there are any mistakes, have them fixed. If your score is lower than it should be, take steps to give it a boost, such as ensuring all payments are made on time and not taking out any unnecessary loans on credit.
Shop around – Much like you would comparison shop for other types of merchandise, you’d be well-advised to shop around for a personal loan. Doing so can help you compare overall loan amounts, monthly payment amounts, and interest rates. While it doesn’t hurt to find out what the big banks have to offer, you may find more selection with smaller community banks and credit unions. These smaller institutions tend to offer more flexible payment terms and even lower rates.
Check for hidden fees – In addition to interest, there may be other fees associated with a personal loan that you might not be aware of right off the bat. Be wary of any additional fees associated with the loan, such as origination fees (charged by lenders to cover the costs of processing the loan), that can be as high as 4.5%. In addition, find out if there are any prepayment fees, which are costs associated with paying off the loan early.
Find out the total amount repayable – In addition to finding out what the annual percentage rate (APR) is when choosing where to take out a personal loan, identify what the total amount repayable is, which will give you an all-encompassing picture of the full cost of the loan, from your first payment to the very last.
Keep your debt-to-income ratio in check – When applying for a personal loan, avoid taking out any additional credit. Adding new credit to the mix will only increase your debt-to-income ratio. Lenders will look at this important number to determine your ability to manage your monthly debt payments. If it’s too high, you run the risk of getting turned down for a personal loan.
What About Bad Credit?
In general, low credit scores make it very difficult to get approved for a loan of any type, including a personal loan. A FICO credit score less than 580 is considered bad credit. As mentioned earlier, a low credit score can also mean paying higher interest rates, which makes the loan more expensive.
That’s because lenders want to limit their risk of loaning out money to borrowers who are at higher risk of becoming delinquent on their loans. Many lenders don’t consider loan applicants with a credit score less than 600.
That said, it’s still possible to get approved for a personal loan with a bad credit score. If you’re wondering how to get a personal loan with bad credit, it’s important to find the right lender for your particular credit rating.
If your credit score is well over 680, you’ll likely have an easy time getting approved for a personal loan at a decent interest rate no matter where you go. But if your credit score is sub-par, you’ll have to be more diligent about where to look. As such, it’s important to find a lender who’s well-versed on working with borrowers with credit scores like yours.
Consider looking for online lenders who specialize in personal loans for borrowers with low credit. Online lenders have been exploding onto the lending scene, helping to fill needs of the underbanked. Online lenders tend to have lower operating expenses, which means you stand to benefit from lower rates that they can offer compared to conventional lenders with plenty of overhead.
That said, it’s important to be very selective with the online lender you choose to work with. While there are many reputable online lenders out there, you’ll also find a number of sketchy ones who lure unsuspecting borrowers with their promises of guaranteed loan approval.
Try to find an online lender that’s state-licensed with no lawsuits under their belts. It would also be ideal if they report payments to the credit agencies and have a positive profile rating with the Better Business Bureau. All of this can be easily found online with some due diligence.
Personal loans can be extremely helpful when money issues strike. Whether you need some fast cash to finance a home improvement project, pay off high-interest credit card debt, or simply cover an unexpected expense, a personal loan might be the ideal way to get you out of a financial jam.
But where you obtain your loan from and the terms you agree to are crucial components to consider before signing on the dotted line. After all, the loan you take out is not meant to exacerbate your monetary troubles, but help you out of a short-term financial dilemma.