Personal Loans For People With Poor Credit
Personal loans are also known as consumer loans or signature loans. They are commonly used by borrowers to accommodate their purchases or services that are too expensive. For example, the borrower can use a personal loan for a new car, home, student, loans, paying off debt etc. There are several types of personal loans like, which are going to be discussed below.
A secured personal loan requires the borrower to provide lender with collateral. This collateral acts as a security in case they are unable to repay the loan. The collateral does offer you a significantly lower interest rate because the risk is lower. Attaining a secured personal loan from a reputable lender is not difficult. As long as you continue making repayments and avoid defaulting, the asset placed in collateral will not be taken from your possession.
For an unsecured personal loan, the borrower doesn’t have to place any collateral. However, they would have to deal with a higher interest rate. The lender would have to be convinced that you are capable enough to repay them the loan with interest. Borrowers often guarantee the repayments by providing the lenders with proof of their income. Depending on their income, the lenders make a decision on the approval of their loan.
Like majority of the students in America, you would need a student loan in order to pay the tuition fee. Fortunately, there are a variety of lenders that are willing to finance you in order to deal with this financial burden. The only drawback of a student loan is the ever-increasing interest ray, till you repay the entire loan. The thought of paying back the student loan may be terrifying but it can relieve you from plenty of stress.
A credit line can be very useful during emergencies. Unpredictable events like a medical emergency, when you aren’t financially backed up can leave you in a tough spot. Luckily, a credit line can allow you to use the credit. There is a limit to the amount of credit you can use. This limit was mutually agreed upon. Though the interest rate is high, it is only applied on the amount you have used.
A debt consolidation loan is used to clear all your current debt. This type of loan will allow the borrower to improve their credit score. They usually have to make one monthly payment and there is a relatively low interest rate. You pay off your existing debt with a new loan that should have a lower interest rate and easier payments.
Personal Lenders - Who Are They?
There are three common lenders that offer personal loans;
- Financial Institution
The local banks or credit unions are financing the loans in local areas. Banks or credit unions are typically the reliable sources to get the personal loan. You might find some flexible terms at the bank but they require high credit scores for qualification. A credit union might be an adequate resource as well. They don’t require high credit scores for eligibility. In addition, they have less interest rate.
- Online Lenders
Lenders available online, don’t tend to have a high requirement for credit scores. This might be the ideal source for people with poor credit scores to attain a personal loan. Though, the process might be tedious and long, they can get the personal loan at a low interest rate with some flexibility. However, the term period of the loan is usually shorter, which could make repayment a bit difficult.
- Payday Lenders
These have the smoothest processing period. The borrower can take enough credit to deal handle any urgent situation like an overdue electricity bill. People that have a good and stable income but poor credit score can also use this type of loan. The lenders usually don’t review your credit history. Instead, they place a higher value on the borrower’s income. This type of personal loan does have one huge drawback. The repayment amount is usually very high. Some lenders might also require you to pay a high application fee.
How Does the Process Work?
To apply for a personal loan, you’d have t go through the normal procedures. Compare the available options, apply for the loan and wait for approval. Ideally, you should be working on improving the credit score because it will lower your borrowing costs.
For people with a poor credit score, you might want to use secured personal loans. The lender would have collateral to be reassured that you will make payments. Additionally, a co-signer could bode well. It will decrease the risk of approving you for a loan. Considering these factors, a lender will be more likely to approve your loan with a poor credit score.
Before agreeing to the terms with the lender, you should consider the following aspects;
- Penalties: Thoroughly read the contract to know if extra charges are going to be added.
- APR: Make sure the bank isn’t overcharging you.
- Flexibility: Some lenders will forgo late payment charges if you are past the due date.
Advantages Of Personal Loans
Unlike a housing loan, these aren’t restricted to the purchase or renovation of the house. A personal loan can be used for anything you want. You can use it for the purchase of a house, or a car. It can also be used to pay off debt or pay any due bills. Since, some of the personal loans are applied under urgent circumstances; you wouldn’t have to wait long for it to process.
Despite common beliefs, a part from the debt consolidation loan, most of the personal loans are harder to pay off. The debt of a personal loan is surmounting and it can ultimately have a negative impact on the credit score. Fixed personal loans will not allow you to pay the loan earlier even if you want to.
Personal loans can be helpful to people whether they have a good or poor credit score. The most important thing you can do is educate yourself about the options available to you. Some lenders require credit checks and some do not, usually depending on the size of the loan being requested. Get informed and make good financial decisions.