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Loans

Good, Bad, And Ugly Credit Scores

When you’re in the market for borrowing money, if you have a good credit report, it’s like a green light for traditional lenders. These lenders will more than likely see you as a risk-free applicant capable of paying back the loan. On the other hand, a bad credit score is like a yellow light, causing the lender to possibly pump the breaks and take caution when offering you a loan. However, regardless of whether your credit score is flashing metaphorical green or yellow lights , there are lenders out there willing to work with those with both good and bad credit.

Borrowing with Good Credit

A good or excellent credit score is your ticket to low interest rates when you take out a loan, so the better your credit score, the better interest rates you’ll receive. This is because a good credit score reveals that you’ve most likely paid your bills on time, kept low credit card balances, and maintained a healthy mix of credit. These are all aspects that lender will look into when deciding whether you’re a good candidate for borrowing money.

In the case of a strong and positive credit history, lenders are more inclined to trust that you will make your payments on the loan, therefore they don’t tend to tack on expensive fees or high interest rates since you are a low risk.

Borrowing with Bad Credit

In contrast, if bankruptcy filings, unpaid tax liens, missed payments, and foreclosures litter your credit report, then you may not receive the best interest rates on your loan. You see, a bad credit score is a representation of your financial behavior, so if your score has seen better days, the lender may not trust that you’ll responsibly handle the loan.

So if your poor credit history deters a traditional lender from lending you money, what are your options?

When you truly need emergency cash to cover one of life’s emergencies, you could look into a bad credit lender. These lenders offer bad credit personal loans to those who don’t have the luxury of qualifying for a traditional loan. But because these lenders will work with you despite your risky financial past, they usually hike up the interest rates and charges to cover the risk factor. These extra charges act as a form of collateral in case you don’t repay the loan in a timely manner.

Borrowing in General

Regardless of whether you’re applying for a loan from a traditional or bad credit lender, there are a few things you should keep in mind before signing up.

First, consider the ways in which you plan on paying back the loan, work the loan repayment into your budget or search for ways to cut back on spending in the meanwhile. You can very quickly fall into a slippery slope of paying pricey interest rates and late fees on the loan if you are unable to pay it back in short order, so it’s best to determine a game play before applying.

Next you’ll want to read all of the terms and conditions of the loan. The lender should provide you with information regarding the price of the loan, fees, payment deadline, renewal conditions, and any repercussions should you not repay the loan. If any of this information is missing, find a different lender who will disclose all of these specifics.

Finally, if you have any questions regarding the loan, don’t hesitate to ask the lender, and don’t apply if you are unclear about any of the terms or conditions of the loan.

Categories
Loans

The Best Kept Secrets About Personal Loans

Living in the United States is costly. It seems like every time you turn around, prices on virtually everything climb noticeably higher and higher. As a result, many times you can find yourself in need of something and not have the cash on hand to pay for it. It is in these cases that it may become necessary to opt for personal loans.

A personal loan is defined as an agreement between people or a financial entity for the purpose of granting money that requires repayment. Usually there is an additional percentage of the borrowed amount that needs to be paid back on top of the principle amount. This is called interest. Loans are typically made with a set repayment schedule with payments made weekly or monthly.

There are several different financial entities that offer personal loans. These include:

  • Banks: Perhaps the most common institution to acquire a personal loan from is a bank. Banks typically have an entirely separate department dedicated solely to the granting of loans. It is usually possible to get a loan from a bank whether or not you are a member. However, it is considered much easier to acquire one if you have a history with them. There are a wide variety of different types of banks. These include commercial banks, private banks and internet-only banks.
  • Credit Unions: A credit union is very similar to a bank in many ways. However, a credit union is actually owned by the people who have accounts with it. All directors are voted in by the members of the credit union, regardless of the size of their account. Loans are typically only granted to someone who is actually a member of the credit union.
  • Peer-to-Peer Company: Also known as “social lending,” this type of institution is a relatively new phenomenon. Peer-to-peer companies are made up of private lenders that allow people to borrow without the intercession of a professional entity like a bank. Many times, the loan granted to an individual is spread out among several different lenders to reduce risk. The popularity of the Internet, combined with the recent financial crisis, has made peer-to-peer lending an increasingly popular lending source.
  • Online lenders: For people that have bad credit or that need money fast and cannot wait for an extended time of approval, online lending might be the best option. The borrowed amounts are usually smaller than other options and are meant to be repaid on a short term. Interest rates may be higher than with other more traditional options, but the convenience of getting cash fast regardless of a bad credit record makes it an attractive alternative for many.

There are many different types of personal loans. These include:

  • Unsecured Loans: These types of loans are the most common when a person refers to the title “personal loan.” An unsecured loan is money lent without any type of tangible asset given as collateral. Unsecured loans are typically more difficult to acquire since the lending institution is placed at a considerably higher risk for repayment. The rate of interest on the loan is almost always higher than their secured counterpart. A person’s credit rating is usually the sole factor used in determining a potential borrower’s eligibility for an unsecured loan.
  • Secured loan: Some secured loans are also considered personal loans. A secured loan is money lent with some form of collateral used to secure repayment. If the loan is not repaid, the collateral is then taken into possession by the lending entity. The most popular types of secured loans would be an automobile loan or a mortgage. These loans would not necessarily fall under the umbrella of a personal loan. However, many secured loans will require the clear definition of what the funds will be used for. The purchased item can then be pledged as collateral for the loan. For example: A borrower requests a loan in order to purchase a computer. Defined as part of the lending paperwork, the computer will be forfeit if the loan is not repaid.
  • Cosigned Loans: In many circles this is actually considered a type of secured loan. When the loan is being considered, if the borrower does not have sufficient credit to obtain a personal loan or any collateral to secure it, a third party will also sign the loan contract. In the event that the borrower defaults on the loan, the cosigner would be liable for repayment. If the cosigner does not repay the loan, the lender can seek legal recourse against them for repayment. The cosigner’s credit score can also be negatively impacted if the loan is not repaid.
  • Payday loans: Payday loans are usually short-term loans that are meant to be repaid with the next paycheck. For the most part, the loan agreement stipulates that the lender is allowed to directly withdraw the money from the borrower’s bank account on the repayment date. A payday loan usually includes a higher rate of interest, but since it is designed to be repaid quickly the interest rate can be reasonable. The key is to repay it in the stipulated length of time and avoid asking for extensions.

Purposes of personal loans

The list of reasons to obtain a personal loan is virtually endless. In this age of excessive credit and financial disarray, one of the more popular reasons is to pay off steep credit card debt. Usually the interest rate on a personal loan is lower than that of a credit card. By obtaining a personal loan to pay off these credit cards, the borrower can end up paying less money in the long run. It is also helpful in the fact that there is only one payment required every month. This can help avoid costly fees and penalties if the borrower neglects to repay one or more of the monthly credit card payments.

Personal loans are also helpful with home improvements. Since these improvements do not provide any collateral, such as you would find in a mortgage, personal loans can be the most cost effective way to perform them.

Personal loans, in one form or another, are some of the oldest methods of borrowing money still used today. Throughout history, lenders of one form or another have offered these types of loans to meet the needs of many different types of borrowers and situations.