Your ultimate guide to unsecured loans
Many consumers request for loans every year. For most borrowers, the main reason for taking out a loan is to keep up with bills. Another reason for applying for loans is to utilize it during financial emergency situations when they do not have adequate money in savings. While personal loans can be a perfect option for borrowers who do not want to exhaust their credit cards, it is important that you first get more information on the type of instant loan that you want to request for before committing yourself to a loan. Here is a guide to help you request for the best unsecured personal loans, unsecured loans to meet your financial needs.
Personal loans are a type of unsecured loans to help borrowers meet their short-term needs. The loans are characterized by a fast approval rate and with many direct lenders available online and on-site it is always possible to choose from a moneylender with good interest rates and convenient loan terms and conditions. Borrowers are not restricted on how to use a personal loan, which means that you can use the loan for different purposes including home renovation, payment of bills, car repairs, emergency expenses, debt consolidation among other reasons. Using the loan for debt consolidation can be the best option if you want to pay off a multitude of debts with different repayment terms to remain with a single loan with affordable rates.
Breaking down personal loans
Personal loans are unsecured in nature, which means that you do not have to issue any of your assets as security for the loan. A loan can be the only and best alternative for individuals who need instant funding but do not have a high valued item to issue a co-maker. The maximum loan amount varies depending on the lender. But since unsecured personal loans, unsecured loans are intended for immediate use, most lenders will issue a loan amount of between $50 and $100,000. The loan can be repaid either in a lump sum or in fixed monthly installments.
Before requesting for a personal loan
Find out why you need the loan
What is the reason for you to request for a personal loan? Is it for car repairs, home renovation? By knowing how the funds will be spent, you will be able to narrow down your list of potential lenders.
Figure out how much you should borrow
After you already know the reason why you are applying for the funds, you then need to decide the maximum amount you need to borrow. For instance, if you want to use the money for debt consolidation purposes, you need to make enough money to pay off all your debt, including the interest rates incurred in each of the loans. If the loan is to be used for a wedding, you need to come up with the wedding budget that covers all the expenses before determining the maximum amount to borrow.
Consider your current financial situation
Personal loans are unsecured, which puts lenders in a high-risk situation. This is the main reason why the loans attract a higher interest rate. If you think that a personal loan is the only option left for you, it is important to first ensure that you are able to make repayments on time. Late payments will not only have a negative impact on a client’s personal credit score and are unattractive to lenders if you want to request for another loan in future.
Benefits of personal loans
- By taking out an unsecured personal loan, you will be able to improve your credit score if you make repayments on time and complete your loan term
- Less paperwork involved
- Faster approval rate. If you meet all the requirements, your loan can be approved in as soon as 24 hours. Some moneylenders approve the loan within a few minutes.
- No collateral is required, making it convenient for borrowers who may not have an asset to issue as security.
Compared to requesting for loans in a traditional institution, direct lenders have a simple and more straightforward way of approving your loan. Among the things that lenders look for to have your loan approved are your credit history and credit rating to determine whether you are capable of repaying the loan. Since no asset is issued as collateral for the loan, the credit check acts as an assurance to the lender that you have the capacity to pay the debt. This means that borrowers with an attractive credit have higher chances of their personal loan request forms being approved. Unsecured loans or unsecured personal loan lenders can also offer the loan to borrowers with a low credit check. However, the interest rates incurred on such borrower will be relatively higher compared to borrowers with good credit. Other requirements that you need to meet for you to qualify for personal include;
- You should be above the age of 18
- You should have a government issued ID card
- Issue a 3-month bank statement
- You should have a consistent income source. Individuals who are not employed are also eligible to apply or a personal loan provided they have a stable source of income, including monthly government benefits.
Pre-qualify for personal loans
Before the lender approves your loan, they will let you know the terms of the loan depending on your credit score and income history. Some of the reasons that lead to borrowers not having their personal loan request forms approved include;
- If their monthly income is not enough to repay the loan
- High debt-to-credit ratio. This means that a high percentage of your monthly income goes towards repaying other loans
- Credit card stacking
Signing the personal loan agreement
After you have met all the requirements and submitted all the documents required by the lender, the lender will review your loan request and process it. After the loan is approved, you will be issued with a more detailed information about the loan including the terms and conditions, the total amount incurred inform of rates and fees and the loan repayment plan. When it comes to personal loan application, ensure that you only borrow what you can comfortably pay back. There are lenders who can offer a higher loan amount compared to what you need. This can be tempting, but it also means that you will have to incur more amount on interest.
It is also advisable that borrowers should carefully review the loan agreement before signing it. After you have signed the loan agreements, it will only take 2-3 business days for the funds to be credited to your account, although some lenders can even have your money approved in as little as 24 hours. What you need to consider as a borrower is that once you have signed a personal loan contract, there will be no turning back. This means that a borrower must comply with the loan terms and conditions failure to which the lender will take the necessary action.
Effects of personal loans on your credit check
Most direct lenders advance a personal loan to borrowers with a bad credit score. This can be helpful especially when you need cash and your credit score is not attractive to be a qualified candidate for a loan. One advantage of requesting for a personal loan is that borrowers who make timely repayments and complete their loan time will have their credit score improve. However, failure to repay the loan as per the loan requirements will result in a negative impact on your personal credit score.
Finding the best personal loan lender
Lenders who offer personal loans are available both online and in store. When requesting for a personal loan, you will be given a list of reputable lenders who offer the loan within your region. Here is how you can come up with the best lender;
Ensure that you first check offers from different lenders regarding the maximum loan amount, the interest rates and administrative fees that are accompanied on the loan. This is where you will start doing the math.
For instance, you want to request for a personal loan of $5000, here are two situations that you need to consider
- Lender one who offers you a loan with a term of 3 years and an interest rate of 12%
- Lender two with a loan of the same principle amount with a 5 years repayment term and a 10% interest rate.
One thing that the borrower will assume is that the lender who charges a lower interest rate is the best option. But if you play with the numbers correctly, you will realize that with the second option, you will incur more than $700 on interest when compared to the first option. When looking for the best personal loan lenders, it is important that you also check the fine prints. Personal loan lenders have varied payments terms. You, therefore, need to work with the lender who offers a loan term that you are comfortable with. Also, do not hesitate to ask if there are any pre-payment penalties or any fees incurred for late payments.
Getting a personal loan could be the best option during a tough financial crisis. The unsecured nature of the loan, flexible repayment loan terms and quick approval rate is what makes the loan attractive among borrowers. Before requesting for a personal loan, it is important that you do your research and only accepts a loan from a moneylender with convenient rates. Also, do not borrow more money than you need since this means repaying more money on interest. You also need to remember that the longer the life of the loan term is, the more interest the loan will attract. If you are currently in a situation that requires instant funding, do not hesitate to fill up the form to get your personal loan approved when you need it the most!