Consolidating high-interest credit cards, covering the cost of medical bills, taking that long-anticipated dream vacation – there are hundreds of reasons why you could use a little extra cash at certain points in your life. If you have good credit, and sometimes if you don't, a personal loan could be the right answer.
Personal loans are loans that aren't backed up by collateral such as a home or car loan. It's money that is lent to you based on your credit score and/or other financial factors, such as income and duration of employment. Because they don't require a material asset such as a house or car for security, they're called unsecured loans.
Here are 6 questions commonly asked when considering one:
1. Can I get a personal loan? That depends on your financial past. Most personal loans look at your credit report and score to determine if you're a good risk, similar to the way credit card companies evaluate you when applying for a new account. Employment history and salary also play a role for some lenders.
2. What kind of interest will I be charged? Interest on unsecured personal loans tends to be higher than on secured loans such as a mortgage or car loan. Home equity loans, for instance, are secured your home, so the lender has less risk. As a result, the interest rate tends to be lower. In an unsecured loan, the lender assumes much more risk, so they charge rates to make up for that added risk. Like with other loans, the interest rate you're offered will depend on your financial history, which is largely reflected in your credit report. Other major factors include your length of employment and your salary. You want to compare offers but be careful about shopping too much, as each inquiry can show on your credit. Also, certain aggregating companies that promise multiple offers usually charge a 20 percent 'convenience fee,' so make sure to factor that in to your bottom line.
3. What if I stop paying? Just because a personal loan is not tied to a home or car, that doesn't mean there aren't repercussions if you default. Lenders have legal means available to recoup an unpaid loan. Late payments and collection activity are also reported on your credit report, which means you'll have more trouble applying for a loan later, so be sure to keep your payments up to date.
4. What if I have bad credit? The good news is there are lenders who will write personal loans for people with less-than-perfect credit. If you have a good job and you've had it for a while – say, several months or more – you have a good chance of finding a lender who will work with you. You'll probably have a higher interest rate, so try to plan on paying off the loan as quickly as you can.
5. How can I improve my chances of getting a personal loan with a good interest rate? The first step in getting a lower interest rate or other favorable terms for any type of loan is to get a free copy of your credit report from each of the three major credit bureaus. Under the law, you can get a free copy from each bureau every 12 months. Look over your reports carefully and report any errors you find immediately to the bureau that issued the report. Make sure your credit is as healthy as possible by paying all your bills on time and keeping your credit card balances (the amount you carry from month to month on your cards) as low as possible.
6. Do personal loans require a complicated application process? No, it can be done in minutes, actually. And you can get an estimate of what you qualify for with an online calculator. If you wish to proceed and file an application, loanDepot’s process will take you through each step quickly and clearly. Keep in mind, a credit check won’t show when you use the rate calculator (as that is a ‘soft’ credit inquiry) but once you do the formal application, there will be a standard credit inquiry.Call today for more information.
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