A personal loan can be hugely beneficial since you can use it for virtually anything. For example, it can be helpful when you have an emergency and are short of funds, want to purchase something that’s out of your budget, or need extra cash to see you through to the end of the month.
Banks and various lending companies offer different personal loans. Still, applying for loans that meet your needs may be helpful rather than taking a blanket approach and applying for loans that don’t suit you or that you’re not eligible for.
Here are some factors to consider to make finding the right loan easier.
Credit Rating
Before you begin looking at your personal loan options, it’s helpful to know your credit rating. Your credit score will determine what loan types you’re eligible for and the loan terms. Unfortunately, traditional lenders like banks may not offer loans to people with poor credit scores.
So, if your credit rating is low, you will likely have to look for other lenders that may offer loans to folks with lower credit scores, such as CreditNinja.com personal loans.
Your credit rating is calculated based on the following factors:
- Payment history
- Amount of money you owe
- Length of credit history
- Credit mix
- New credit applications
Lenders may want to see how you handle your debt, so you’ll likely need to take loans and pay them back timeously to build your credit score.
According to an Equifax publication, most lenders consider credit scores below 580 poor, 580 to 669 average, and scores above 670 good.
How Much Money You Need
Knowing how much you need before applying for a loan may help determine which institution you should apply to. Sometimes, banks may have a minimum amount you have to borrow; for example, the minimum amount may be $1000.
If you need finances less than the minimum, you may be better off saving the funds or finding a lender who can offer a lower loan amount. This is because taking a larger amount than you need means paying more interest when you can avoid it.
On the flip side, borrowing too little may force you to take out another loan, which may negatively impact your credit score.
Loan Type
After determining your credit score and calculating how much money you need, you must decide on a loan type that will suit you.
Traditional Personal Loans
If you’re applying for a personal loan through a traditional lender like a bank, you have two main options: secured and unsecured loans.
Secured loans may carry a lower interest rate since you will need to provide something as collateral. This can be an asset like your home, car, or investment account.
Unsecured loans can be riskier for the bank because you needn’t provide collateral. Because of this, these loans may have a higher interest rate.
Bad Credit Loans
If your credit score is poor, you might need to consider searching for bad credit loans. These loans can be secured and unsecured, but in most cases, they carry high-interest rates and less favorable terms.
Unsecured bad credit loans are relatively easy to secure and may not require a credit check. To apply, you must be over eighteen and have a bank account. You must also provide a valid ID document, proof of income, bank phone number, and proof of address.
The amount you borrow is based on your income, as you may have to repay the loan with your next paycheck or within two to four weeks of receiving the loan.
The application process is likely quick; you can apply at the lender’s premises or online, and once approved, you can expect to receive the funds.
A pawn shop loan is a type of secured bad credit loan. To apply, you need to have a valuable item you can use as collateral. Popular items that people use include musical instruments and electronics.
You can apply for a pawn shop loan online by submitting images of your item to the dealer, or you can take your item to the pawn shop for the dealer to evaluate. After looking at your item, the dealer may offer you a loan that’s about 25% – 60% of the item’s resale value.
You typically have about two months to repay the loan and may be charged additional fees for storage and insurance over and above the high-interest rate.
Affordability and Cost of the Loan
Whether you take a traditional or bad credit loan, you must be sure that you can afford to repay it. Apart from the loan amount, you will also be charged interest and fees. Usually, traditional personal loans are installment loans that you may pay offer over two to four years, depending on the loan terms.
Before signing a loan, do your sums to ensure you can manage the monthly repayments. Bad credit loans may have less favorable terms with a shorter time frame to repay your debt, so double-check to ensure you can repay it.
Wrapping Up
Even if you need money quickly, you must take some time to consider the factors above before taking a loan. In addition, knowing your credit score and how much money you need will help you find the loan type that best suits you, and working on whether you can afford the repayments will save you from stressing over the repayments in the future.
