Personal Loan

A personal loan is a multi-purpose loan that provides a borrower quick and easy access to cash. Personal loans are available in various forms including signature loans, secured loans, and unsecured loans.

As a general or multi-purpose type of loan, it can be used for any purchase or to address  immediate financial needs such as home improvements, car repair, and urgent bills. Proceeds of the loan may range anywhere from 500 dollars to tens of thousands, depending on the existence and value of the collateral.

Online loan applications are available. Once approved, the borrower will be contacted by a lender immediately to provide the necessary details. You can find a loan application form on this page. If you are not qualified to apply, we can help you find other financing alternatives.

Available Types of Personal Loans

In general, there are two common kinds of personal loans – secured and unsecured. A secured loan is backed up by collateral, while the latter is not.

Unsecured Loans

Borrowers who do not have any valuable assets to use as collateral or people who are not comfortable in securing a loan with a high-value asset typically apply for an unsecured loan. Because there is no collateral to back up the loan, lenders rely on the borrower’s current income and credit history in deciding whether to approve or deny a loan application.

Lenders consider an unsecured loan high risk because they cannot repossess anything to recoup their losses if the borrower fails to repay the money loaned. To compensate for the risk, lending institutions charge a higher than normal interest rate; thus, increasing the amount of required monthly payments.

While personal loans are common and easy to use, borrowers with low credit ratings will have a hard time getting their applications approved simply because the risk may be too much for the lender to bear. In this case, the borrower’s alternative would be a secured loan – if he has a valuable asset to use as collateral.

Secured Loans

A secured loan is a type of short-term personal loan that is linked to an acceptable form of collateral. To gain access to a small credit, the borrower offers a valuable asset like real estate, or his paycheck as security. Depending on the collateral offered, a borrower may offer any of the following types of secured loans.

Car title loan

A car title loan, as the name suggests, is secured by the borrower’s vehicle. This type of short-term loan is commonly used primarily because it is easy to obtain and there is no credit check required. The risk is that if the borrower defaults on the loan, the lender can legally repossess the collateral, which in this case, is the borrower’s car to recover the amount of the loan. Despite the risk, the car title loan remains popular among borrowers who have a suitable vehicle.

Payday loan

This is a type of cash advance that enables a borrower to gain access to cash payable on the next payday. This is ideal for short-term needs and is not recommended for people who cannot afford to pay back the borrowed money within a period of two weeks. Minimal to no credit check is performed by the lender, and the borrower only needs to provide collateral in the form of post-dated checks. It is easy to get a payday loan; however, it bears a high interest rate so a borrower must think carefully before deciding to go for one.

Home equity line of credit

Borrowing money using home equity as collateral was very popular in the entire country prior to the housing crash and the “Great Recession.” Also known as HELOC, a home equity line of credit is a great option for homeowners to get the built up equity on their home without having to refinance their home mortgage. This type of loan product carries more risk than a payday loan or car title loan. Many unsuspecting homeowners learned that the hard way – when the housing and real estate market collapsed several years ago. However, if a borrower has stable home equity, this is a good option to use to get immediate cash at a low cost.

Other types of secured loans

On the other hand, borrowers who do not have a home or a car still have a personal loan option. There are lenders, specifically the alternative online lenders, who would be willing to extend a loan provided it is secured by any valuable item other than a home or vehicle. Collateral may be in the form of a valuable art piece or even a bottle of expensive wine. As long as the offered item is valuable, the lender may accommodate a personal loan request. What is important is the lender is holding something of value that can easily be sold to recover the loan amount in case of default.

  • Cost of Personal Loans

    The cost that comes with a personal loan depends on the borrower’s specific circumstances. The monthly payment includes the pre-determined interest rate added to the principal. In determining the rate, the risk that comes with extending the loan is considered, including the value of the collateral, if any, as well as the credit history of the borrower.

    Better terms are offered to borrowers who can secure the loan with high value assets and those who have a good credit score. A credit score that exceeds 640 may be sufficient to land a personal loan that carries a low interest rate.

    Personal loans are not covered by general cost guidelines, and don’t have a standard system for charging interest rates, unlike other loan products such as mortgages. The cost of repayment purely depends on the discretion of the lender and the borrower’s perceived risk and eligibility.

    If you are looking for a low-cost personal loan that would be easy for you to pay back, you can research various lenders and options.

  • How to Know if You Qualify for a Personal Loan

    The approval of a personal loan is dependent on the borrower’s credit rating and the absence of a derogatory credit record. You can quickly determine if you qualify or not by applying online. Lenders use different criteria and have different requirements when evaluating applications for various loan products, including personal loans.

    After filling out the online application form, you will be notified if you qualified for the loan and for the amount you requested. To be eligible for a personal loan, you must meet these requirements:

    • Must be at least 18 years of age
    • Have an active bank account
    • Have a stable income source

    The age requirement is important since you have to be at least 18 years old to enter into financially binding contracts.

    A live bank account is necessary, as this will allow the lender to immediately deposit the proceeds of the loan; and in the case of payday loans, to conveniently withdraw payments in a timely manner. An additional requirement for secured payday loans is bank account information or a post-dated check.

    Finally, a stable income source shows the lender how you can afford to pay your loan. An acceptable income source may be in the form of a steady job, social security, unemployment check, or government benefits.

  • How to Apply for a Personal Loan

    If you meet all the requirements above, you can apply for a loan with any lender you prefer. If you opt to apply online, you should provide all the requested information on the application form (you can find one on this page.) These include your full name, requested loan amount, and zip code, among others. Succeeding application forms will require additional info such as your credit score, loan purpose, age, and other personal data.

    An online application form is easy to understand and fill out. Once you are done with the form, you will receive a notification if you qualify. Otherwise, you may  be offered other options.

  • Personal Loan Availability

    Access to personal loans through storefront lenders varies from one state to another. The US does not have a standard law governing short-term lending; thus, every state has its own set of applicable laws.

    In general, all kinds of consumer loans are covered by state laws, but those pertaining to secured personal loans are contested the most. Many states have strong restrictions on payday and auto title loans.

    While new laws may limit personal loan availability, the demand for it will be very difficult to eliminate. To better appreciate how small consumer credit availability affects borrowers, a study was conducted specifically to analyze potential borrower demographics. This will help the industry to better understand why funds are needed, and where the money is typically used.

     

     

  • Risks and Benefits

    Regardless of its type, any loan carries a certain degree of risk. It may be due to overall cost, high interest rates, or possible loss of collateral. By equipping yourself with the right knowledge before applying for a loan, you can significantly mitigate the risks and gain all the benefits.

    Risks

    Compared to other types of short-term borrowing options such as payday loans and car title loans, a personal loan is not seen as a negative. This, however, doesn’t mean that there are no risks involved. If you opt to put up collateral for your loan, you must make sure that you can repay the loan. Otherwise, you not only put your credit score at risk, but you may also lose the valuable asset you used to secure the loan.

    While a secure loan may allow you to enjoy more favorable loan terms including lower interest rates, it is linked to your collateral. If you secure a loan with your car, and you are unable to repay, your lender will repossess your vehicle to cover their losses. Thus, it is important that you make sure that you will be able to meet your loan obligations before applying for a secured loan.

    In many states, strict regulations are put in place to lessen the risks of short-term borrowing. Some states impose interest rate limits, minimized rollover availability, and enhanced zoning protection. If your state imposes a ban on payday loans, you can expect that you loan application will not be approved.

    Benefits

    Personal loans come not only with risks, but with benefits as well. These include:

    • Consolidation of various costly loans
    • Filling an immediate, and sometimes, desperate financial need
    • Addressing unexpected expenses such as hospitalization and car repairs
    • Bridging the financial gap in-between paydays
    • Purchase of expensive appliances

    A small loan can also help improve your credit score. It may be a risky way, but if you are able to pay on time, it will make it possible for you to get better loan terms in the future.

    Simply put, personal loans provide a viable personal financing alternative for consumers.

  • Selecting the Right Lender for You

    You can choose between two personal loan sources – banks/credit unions and online lenders.

    Online Lenders

    The internet offers the easiest way for consumers to file a loan application. If you choose this route, thoroughly evaluate the lender to protect whatever vital financial information you will provide. Following is a list of things to look for in online lenders:

    • BBB profile
    • Secure website certificate
    • Privacy policy
    • Terms of agreement
    • Proper disclaimers and disclosures
    • Physical address
    • Live and verified phone number

    Online borrowing allows you to get quotes from multiple lenders, and easily compare your options. This way, you can shop for the best personal loan terms.

    Banks/Credit Unions

    Banks and credit unions were the first institutions to offer personal loans, and while other types of lenders have emerged over time, the two traditional lenders have remained as a popular source of consumer borrowing.

    While banks evaluate and approve applications for personal loans on a daily basis, the turnaround time is still longer than online lenders. This is because bank validation eats up a lot of time. While both banks and online lenders require proof for borrower-submitted information, the review process is fast-tracked by online sources by requiring their loan applicants to submit just a single form, and they can quickly notify them on whether the application is approved or denied.