Unsecured Personal Loans: A Brief Guide to Choosing the Right Option

With the problems in the economy that prevail today, there is little wonder that so many people are in need of extra funding. For many of us, the only realistic financing option is an unsecured personal loan. But, despite expectation that bad credit scores make approval difficult, there is every chance of a successful application.

A key part to getting approval with bad credit is to apply for the right kind of loan, and from the right kind of lender. And in this respect that are a number of options that need to be considered. From traditional lending institutions, like the well-known banks, to the relatively new array of online lending firms, the choice is extensive.

It is, therefore, important to consider the options available before actually applying for a personal loan. Here are a few points that should be considered to start with.

What Does Unsecured Mean?

In case there is any confusion, an unsecured personal loan is just one kind of loan that can be taken out, with the other being a secured loan. The only real difference between the two is the inclusion of security in the loan deal, known as collateral. This is a possession that the borrower offers as compensation to the lender is they default on the loan.

The advantage of including collateral is that it lessens the risk the lender is under of losing money, therefore increasing the chances of getting approval with bad credit. Another advantage is that a lower rate of interest is charged, thereby making the loan more affordable to repay.

The problem is in finding something that matches the value of the loan. For a small personal loan of perhaps just $1,000, it might be easy to find an item of jewelry that can be used as collateral, but the task is harder for a loan of $10,000.

Online or Traditional Lenders?

The second consideration before making your application is where to apply. Most of us think immediately of going to our local bank and seeking a loan there. However, traditional lenders are infamous for their poor terms on unsecured personal loans, especially when the borrower has a poor credit history.

Typically, a bank charges a high rate of interest on the loan. The idea is that the lower the credit score, the more likely the borrower is to default on the loan – though statistics do not necessarily hold that belief up to scrutiny. However, when seeking approval with bad credit, it is normal to accept these compromises.

In contrast, online lenders design their personal loan packages to suit borrowers with low credit scores, with more competitive interest rates and more flexible repayment schedules. It is their niche area that sees them flourish despite competition from established banks.

The Family Option

While online lenders are a genuine lower-cost loan source, the most affordable unsecured personal loans are found much closer to home. A family loan, for example, is provided by a member of the family and as such, approval with bad credit is virtually assured. And since it is between family, there is usually no interest charged (or very little).

However, as with every kind of financial deal, it is essential that terms and conditions be written down and signed before any money changes hands. This is for the sake of clarity as much as anything else. So, when getting a personal loan from your father, brother, sister or cousin, the terms can be much more suited to your needs.

5 Situations When Personal Loans Can Save the Day

With a rock solid credit history, you can successfully apply for personal loans and expect a swift processing of the same for meeting temporary financial glitch in life. Personal loans are all-purpose loans that can be availed as secured or unsecured loans. These can be used for multiple reasons and the purpose need not be disclosed ever to the lender.

The interest rate of loan depends on the tenure and credit score of the borrower. These can be drawn for a few months to several years as per your requirement.

5 situations when you can use personal loans as a smart financial move:

  1. When you have immediate cash needs: It is practical to use short-term personal loans to bridge the shortage of funds in your life. You can use the funds to support any of the sudden cash emergencies like medical expenses, home repair or funding a foreign trip. The purpose of loan doesn’t affect its interest rate, however your income and duration of loan does. All you need here in a planning stage is to have a strong back up plan for repaying the loan. The repayment will improve your credit score and add to your future worth at the same time.
  2. To avoid bad credit situation: In case you have lost a job or face a sudden spurt of personal expenses such as a wedding or some other expense in your life, you can take recourse on personal loans. Bad credit is a situation you should always avoid. If you have shortage of funds, rather than missing a loan repayment you can borrow some funds. The idea is to not let the score fall for temporary financial challenges.
  3. Consolidate multiple payments: When you have multiple payments to be made every month, it is better to simplify the process by consolidating the loan into one personal loan. By consolidating loans, you just have to pay a single repayment and that will pay for other loans. Availing short-term loans for bad credit is a practical means to mend mounting debts and save a financial mess.
  4. Additional funding for students: Being a student it is not always easy to keep a track on your expenses. Sometimes you need funds for reasons that your education loan misses to pay for. Herein you can apply for short-term loans for students as these are readily available. The short-term loan can also be used as a right way for building a good history.
  5. Business funding: Every new start-up or a business entity needs positive inflows. You need to maintain adequate supply of funds for maintaining sound terms with your suppliers and business associates. The short-term personal loans can be used as business loans to keep the flexibility of operations in your business.

In all of the above cases, personal loans can be used to better manage your finances. However it is prudent that you carefully read terms and conditions of a loan agreement and do not sign a very expensive loan. In case you find yourself unable to make a mind on the loan terms, you should contact a loan broker for a financial advice. He would guide you on the ways to manage your funds and keep your credit score healthy.

A Quick Guide to Personal Loans

If you have been seeking a good value loan at a rate that you can afford then it pays to shop around. The rate of interest that you may have to pay for a particular loan can vary from just a few percent for loans from a high-street bank, to tens of thousands of percent for loans from payday lenders.

In many ways payday lenders have become the new loan sharks of the modern age, and all too easily your debt can spiral out of control if you take the quick and easy route that these loans seem to offer.

Instead of simply opting for the loan that is the easiest to apply for you instead need to make sure to check several aspects of any loan.

1. What is the interest rate that will be charged?

Payday Lenders will try to confuse you into thinking that APR rates don’t matter (because their rates are ridiculously high). But the fact is that the APR is the most transparent measure of how affordable a loan really is.

You should be sure to shop around and try to find loans that are as cheap as possible from the perspective of interest rates.

Avoid Payday Loans whenever possible – These companies may seem to be a short term answer, but any loans that you take out with these companies will very quickly build to become a millstone around your neck.

You should only take out loans that you have a realistic expectation of being able to pay back, because otherwise you can very swiftly find yourself mired in debt that you can never escape.

2. Try out your current bank first for a loan

You may search online for phrases like “personal loan” with the intention of finding a variety of different lenders, but the fact is that you should always start off by approaching the bank that you already have a relationship with first.

Often times the banks save their very best deals for existing customers, and so you may find if you inquire that they are able to offer you a loan at a substantially better rate then they are advertising to borrowers that do not have any track record with them.

If you currently have a good credit history then you will often find that you will be offered deals that are superior to the ones that are being offered publicly.

Personal Loans are an area that you should approach with care and be sure to carry out careful research on before taking out a deal.

There is no shortage of companies who will lend money and so you can afford to be picky about the one that you choose to go for.

Above all, know exactly what you are signing up to and read any terms and conditions very carefully before signing on the dotted line.