« »

Thursday, December 12, 2013

Personal loans: A brief guide

Higher interest rates are usually charged for loans without collateral
Credit score affects loan terms and rates
Personal or unsecured loans can be borrowed for a number of reasons ranging from funding marriages to education, or a vacation. You will not be required to place any collateral against this kind of debt. However, since there is no collateral involved, you’ll be charged a higher rate of interest than that of the collaterized loan. They are generally offered by credit unions, banks, credit building groups, or else peer-to-peer lenders. Please make sure that you are conducting proper research before availing these loans. Given below are some points that should be kept in view.

Your credit worthiness is one of the crucial factors that would govern your chances of securing these loans. Your yearly earning, your past credit scores and the present volumes of debt are all considered before the loan is sanctioned. 

If there’s any lender who tells you that you can avail these loans even with poor credit, then he’s not necessarily telling the truth. There are lenders who provide loans to needy borrowers without conducting proper credit checks. But the rate of interest remains high in these cases. 

So, no matter, whomever you are consulting for the loan, make sure that you are always conducting proper research from your end. And yes, if you are not exactly sure about how much you’ve earned as credit scores from your past debts, then you can turn to a credit bureau for finding out the same. You can also sign up for a credit monitoring service for free. 

Higher credit scores reflect that you have dealt better with your debts in terms of timely repayments whereas poor credit scores imply just the opposite. In case, you have poor credit scores, lenders would charge you a high rate of interest. With good credit scores, you would be able to settle for affordable rates of interest.

Which lending options should you choose?

The places from where you can avail these loans are mentioned above. One of the crucial decisions that you would have to make before availing the loan would be regarding the place where you’re going to turn to for help. If you’re someone faced with similar confusion then here are some points you can consider:
  • Peer-to-peer lending options can be availed as it is a bit easier to qualify here. Most of these lending groups are working for profit unlike the non-profit credit unions. Thus the rates might be a bit on the higher side.
  • The non-profit credit unions generally charge lower rates of interest and might help even if you have poor credit scores.
Some of the best ways to find the cheapest rates in the market are provided below:

Your credit scores would be governing the rate of interests charged on your loan in a major way. But please remember that not every lender in the market has the exact same rate. So it would be prudent to compare the rates charged by the leading lenders. Don’t worry. You don’t really have to traverse long journeys to the lending institutions in a bid to find out about the rates. Just an online search would help you to compare the interests charged by the leading banks. 

If you think that your present credit scores will not be able to ensure you decent rates of interest then take the help of a cosigner with good credit scores. In that case the lender would be assured of the chances of repayment and might as well be pursued to lower the interest rate a bit.

There are many loopholes associated with these debts and if not handled properly, you might as well find yourself grappling with the high fees and interests. There is no dearth of unscrupulous lenders to put you in trouble in this regard. However, if handled properly, a personal loan might turn out to be a better option than pawnshops, online loans same day or else overdrafts.

About the author: Jonny is a veteran finance blogger with a number of well-researched posts on insurance and debts to his credit. 

Image license: 401(K) 2012, CC BY-SA 2.0 


  1. Thank you so much for sharing a lot of this good content..

  2. This comment has been removed by the author.