A personal loan is a type of loan that falls under the umbrella of unsecured loans. A personal loan is handy to get instant cash that allows you to use the funds how ever you’d like. A personal loan does not require you to pledge any property or valuables as security. The repayment time span of personal loans usually ranges from weeks to five years depending on the policy of the credit institution and most of the times there is a fixed amount of repayment installment with equal intervals of time.
When Applying for a Loan, the Lender Focuses on Two Main Factors:
1. Your credit history
Credit history tells about your previous borrowing record. Credit history includes such type of information as:
- Do you have a bad credit score?
- How many times have you taken a loan?
- Which type of loans did you take in the past?
- How many numbers of times the did you delay the payment?
- Is there any default made in the previous history?
2. Your source of income
Information about your income is necessary for assessing whether you can repay the loan amount or not.
How Can I Get Approved for a Loan?
If you have a steady source of income and maintain a positive credit rating or history, you'll be eligible for getting a personal loan.
Personal Loans Are Categorized into Two Different Categories:
Revolving Loans or Personal Credit Line
When you apply for a loan under a credit line, the bank or credit union calculates your credit limit based on your total average monthly income. After determining your credit limit, the bank approves the loan amount and transfers it to a loan account. You use the money whenever you need it instead of withdrawing the whole amount.
A personal credit line is very similar to a credit card. However, it allows you to withdraw the cash from the bank directly. The bank generates a monthly bill with the minimum and total amount payable by you. You have a flexible payment option whether to repay the minimum amount of the bill or repay more than that amount. There is no fixed schedule of making repayment installments; a borrower can deposit the amount in the repayment account whenever you have the money during the month in addition to the minimum payment.
One of the best benefits of a credit line is that upon repayment of the loan, you're already approved for that amount. There is no need to get approval or apply for a credit line again. Another essential feature of a credit line is that the interest is charged on the used amount of money instead of the total approved loan.
Standard Personal Loan
When a borrower applies for a personal loan, if you are approved, the loan is transferred to you. The whole amount of the loan is handed over to you along with the schedule of monthly repayments. The amount of the installment is usually a fixed amount over a set time. The terms regarding your repayment amount, the rate of interest and the length of the loan is predetermined at the time of applying for the personal loan between you and the lender.
A borrower who has an excellent credit rating and steady source of income can get the loan by signing the loan papers. Therefore a personal loan is also called a signature loan or consumer loan. Personal loans are unsecured loans and expose the lender to a higher risk and usually have a higher rate of interest as compared to secured loans.
Consider These Points When You Apply for a Personal Loan:
Personal loans are not specific or special purpose loans like home loans, car loans or education loans. Personal loans are used for meeting personal needs.
1. Don't Borrow More Than You Need
Before applying for a personal loan, it is better to calculate the actual amount of funds you need to meet the specific situation. Only that amount should be borrowed from the credit institutions even if your credit rating allows you a higher loan amount.
As personal loans are designed to meet the instant need of cash, the loan processing is very speedy, and the loan will be available to you in a very short span of time as compared to other types of secured loans. Don't be enticed to increase your loan amount.
2. Shop around for Interest Rates
Credit market research is necessary regarding the interest rates while applying for a personal loan. Interest rates vary from institution to institution. Compare the interest rates between banks and other financial institutions. Find the cheapest rate you can for your loan. Interest rates have a huge impact not only on the cost of obtaining the loan but also increase the monthly repayment installment and can disturb your cash flow. A lower rate of interest is better in all aspects of your loan.
3. Read the Fine Print
When you are approved for the loan, all you need is to sign a document that contains the terms and conditions of the loan. That's why an unsecured personal loan is also known as a signature loan. At the time of applying for a personal loan, it’s better to acquire the contract agreement in advance to read and understand the prerequisites for the loan.
Most of the time, some of the costs like processing charges and other hidden financial fees associated with the loan would be negotiated with the bank only if you know about them before applying for a personal loan. In other words, applying for a loan quickly without reading and considering the impact of the terms can increase the cost of funds.
4. Determine Which is Better: Variable or Fixed Interest Rates?
Some money lenders offer the option to opt interest rate at variable or fixed rate.
What are Variable Interest Rates?
The movement of the interest rate varies according to the market conditions if there is a rise in interest rates of the market then the loan interest rate will also rise and in case of fall in the rates, personal loan installment will also fall.
What are Fixed Interest Rates?
The rate of the interest is decided before signing the loan agreement, and the interest rate remains unchanged irrespective of the market fluctuation.
So, the decision of which interest rate is also critical to receive the lowest cost to finance and minimize the monthly installment fee. At the time of applying for a personal loan, consider the previous history of the interest rates. Assessing the interest market trends will be beneficial.
5. Consolidate Your Loans
Most of the time people apply for personal loans to consolidate different loans into one loan. They are making two or three payments during the month. One of the best uses of a personal loan is that you find a cheap source of funding. You can combine all your other loans and pay them with one fixed installment that will be payable monthly.
Getting a personal loan is very easy now these days as so many private companies, banks and trade unions offer this type of loan. All you need is to not hurt your credit score by paying your bills on time. Selecting a lender with terms that best suit your financing needs and have the lowest rate is critical. A personal loan is a convenient way to respond to unexpected or emergency financing requirements, but using it wisely is also very essential to avoid the burden of loan repayment.
Applying for Loans at CASH 1 If You Have Bad Credit
Grab a pen and paper and list three reasons to apply for a loan at a conventional bank. Even if you are certain no bank would approve your loan application, just list any three reasons. Now write down the following three reasons to apply for a loan at CASH 1:
1) Getting a personal loan for bad credit.
3) Title loan instead of standard bank loan.
Whatever three reasons you wrote down, we're willing to bet none of them match the three we gave you.
1) Using installment loans to fix bad credit is a perfectly valid and responsible practice of borrowing money, and none of the large, standard banks will approve a loan for this purpose. Seems counter-intuitive, doesn't it? Fixing your credit would open doors for you to borrow from banks, so you would think they would provide this service.
2) Getting no credit check loans are simply not possible in any of the conventional lending banks.
3) A title loan for smaller loan purposes is often easier to obtain and quicker, with smaller and shorter terms than a standard loan through a large bank. Where you can borrow several thousand dollars for a title loan, most large banks will not loan any amount under $20,000. And some of them penalize you for paying off early!
Come see CASH 1 if any of these three reasons to use our services might apply to you.