Personal loans can be a source of financing for major expenses, such as home renovations, debt consolidation, and big life events like weddings and vacations. They are generally structured as unsecured loans that require installment payments over a specific period of time.
You typically have to undergo background and credit checks to qualify for a personal loan. Interest rates are often fixed, and collateral is not commonly required. You can even qualify for this type of loan with less-than-average credit.
You can apply for an unsecured personal loan through a bank or credit union. The amount you can borrow and the interest rate are determined by your credit history and ability to repay.
These loan terms, and what you can use the personal loan for, can vary from lender to lender, so shop around. If you have a long relationship with your financial institution, you might be able to get a better rate, but you also can look for bank and credit union promotional offers designed to attract new customers. See the latest Personal Loan Rates here.
When an unsecured personal loan isn’t an option for you, a secured loan might be. Secured loans are granted if you have an asset — such as a CD, stock, boat or car — to borrow against and use as collateral. The amount you can borrow depends on the equity in the asset.
You risk losing your asset if you cannot make the payments on the loan, but an advantage of these types of loans is that you can possibly get a larger loan amount than you would with an unsecured personal loan.
P2P lending is another avenue to secure a personal loan. Instead of applying for a loan via traditional channels such as banks or credit unions, you apply within online marketplaces where you connect with individual or groups of investors who are willing to lend you money in exchange for interest.
Advantages of this type of loan include that it’s reported to the credit bureaus as installment debt, which is scored more favorably than revolving debt. In addition, applications are processed quickly, and repeat borrowers can sometimes get access to better interest rates.
Drawbacks include risk-based pricing, which means that the better your credit score, the better your rate — and some applicants won’t even receive an offer. You’ll also have to pay closing fees.
Bad Credit Personal Loans
Bad credit installment loans differ from payday loans in that they typically last from two to five years and have a lower interest rate. But when you have poor credit, you can’t expect the best rates out there. You can, however, shop different lenders’ rates and terms, apply online, and receive an answer in about a day.
In many cases, a checking account is required to qualify for this loan type, so if you’re unbanked, this isn’t the option for you. And as with other alternative personal loans, make sure you carefully read all the terms and conditions of the installment loan before accepting.