Personal Loan Basics Spelled Out: Loan Shopping 101
There are many types of loans. Knowing the personal loan basics is important to helping you distinguish. For someone who plans to buy a house, then a home mortgage loan is what you need. If you need cash for a new car, then an auto loan is what you are looking for. But what about those times when you are unprepared? Or when you plan a summer get-a-way with the family, but are short on funds?
Everyone at one point in time or another thinks about taking out a personal loan. Whether it is because of an unforeseen accident or a major crisis, people will always need money to solve financial problems.
A personal loan can provide the funds to help you though those times; and this is what makes personal loans different from other types of loans. However, the question remains, how do you go about finding the best solution to your financial dilemma? Well, here are a few answers to some of the most common questions when you shop personal loans. I call them my Personal loan basics.
How do Personal Loans Work?
For the most part, Personal loans are simple to understand and usually do not require any collateral, unlike buying a house. The first thing to do is to find a personal loan lender. Once approved, you will receive the amount in one lump sum. The way you pay it back is in installment loans. Personal installment loans can be used to finance items such as high-interest credit cards, an upcoming wedding, or just unexpected circumstances.
When you shop personal loans, make sure you do not sign anything without completely understanding what all is required of you. Look over the paperwork and always check the interest rates. Be aware of the terms and watch for fees. It will take some time to pay off your personal loan in full. However, it can get you out of a tight situation.What are the Rates, Terms, & Fees?
Personal Loan Rate, Fees and Terms
One of the first steps to personal loan basics are to understand the rates, terms, and fees that comes with it. Wouldn’t it be nice if we can all borrow money and not have to pay any interest? Sorry, we don’t live in a perfect world. However, there are ways to pay a low interest rate when you apply for a loan.
Sometimes if you can get personal loan online help, the lending site may offer lower interest rates. The websites may even provide lower interest rates than going right into a bank or a loan office. Thus, where you shop personal loans are just as important.
In addition to interest rates, loan terms and loan fees are also part of the process of applying for a personal loan. Depending on a person’s credit score, income, and the capacity to pay off the loan will determine the interest rate and the length of the loan offered. In my next few paragraphs, I will explain some personal loan basics about rates, terms, and fees in more detail, including what each are and how to prepare for them.
The Interest Rate
An interest rate simply is what the lender is charging you for the use of borrowing their money. A client that has a good credit score, then the interest rate can be pretty reasonable.
However, if the credit score is low, then the interest rates offered can be very high. There are two types of interest rates: a fixed rate and a variable rate. Fixed rates never change and stay the same throughout the life of the loan term.
The interest rate of a personal loan with a fixed rate is usually low. On the other end of the spectrum, variable rates may be low at times, but increase whenever the market changes. This can be very frustrating for someone new to loans. I would suggest to shop personal loans really well, and consider which type of rate would be best for you and your financial situation. Some personal loan basics to remember is to always shop around. Checking out several lenders will help in determining the best interest rate for you.
Personal Loan Terms
Each personal loan lender provides the client with information on not only on the interest rate on the loan, but on how many months or years it will take to pay back the loan in full. Personal installment loans may be a short as 12 months or as much as five years. Collateral is not always required, but it may help if your credit score is low and you need some help with securing the personal loans. Collateral is good if your personal loan term is long as well.
Many cash lenders or banks want collateral to feel safe about giving money to a client; and the same goes for the client as well. All parties want to feel they are making a good decision and that it is not wasting anyone’s time or money. To learn more about the personal loan basics of loan terms, check out loanry website- how to borrow smarter
Personal Loan Fees
No one likes the sound of the word “fees”. I know I sure don’t. But there is just no way around it. Clients that take out a personal loan will always have to pay to apply and also process the loan. When you shop personal loans, you should know about the several types of fees that comes with borrowing money. As you read on, take notes, so you can be prepared when it comes time to apply for your own loan. Below are some personal loan basics about fees. I have also made it simple by explaining each one in detail:
Types of Fees
- Application Fees– The fee to apply for the loan itself. Usually the charge is $50 or under. Getting denied for a loan is not always the worst thing to happen. You may need to reevaluate your finances and try another way to get out of a financial situation. However, if you do get denied, you will have to pay another fee if you decide to apply again. However, at some loan lending offices, they may waive the fee if your credit is in good standing.
- Administration fees– This is the cost to process the application and normally runs the applicant around $35-$50. Some loan offices may not charge a processing fee or it may already be built into the application fee. Always check with the lender before you sign your agreement papers.
- Origination fees– The origination fee is the cost to take out the loan itself. Many lenders ask for this in replacement of both the application and administration charges. Normally it is about 10% of the loan. However, this fee is paid from the amount of the loan. For example, if your loan amount is $1000, then your origination fee will be $100. Thus, what you actually receive is $900.
- Late fees– A late fee is added to the loan when you do not pay your monthly installment amount on time. The fee is usually around $30-$37 for each time you are late. Some loan offices may offer a one-time forgiveness affect, similar to a grace period. This can mean if it is your first time you forgot to pay, then you may not receive the late fee.
The idea of paying early seems like a good thing, right. It saves you on all that interest. However, there is something to consider. If you pay the personal installment loans too fast or try to double your monthly amount, you can be subject to a penalty. The Prepayment penalty may be steep, depending on where you got your loan. On average the fee is 80% of six months of interest.
Personal Loan Eligibility Requirements
Every lender has his or her own set of eligibility requirements or factors. In my opinion, one of the first personal loan basics to know when going into a loan office is what are the eligibility factors of the loan. A lender’s first job is to see how an applicant manages their credit.
Many personal loan lenders look first at the client’s debt to income ratio and if the monthly payments are paid on time. Keep in mind, If you cannot pay your regular monthly bills on time, then chances are, you will not get approved. Sometimes underwriting methods can have a role in the eligibility process. For instance, looking at career experience, education level, and financial history of the client.
Bottom line, don’t job hop!
Lenders may look at your time with your employer. Another requirement is the age of the applicant. Depending on the lender, a client may need to be at least 21 years old before applying for the personal loan. It may be a good idea to not house hop either. Some lenders may not care about a prospective client moving from place to place as much as others.
However, the longer you plant roots in one house or even an apartment, the better it will be for your overall credit. Plus, it will show stability, dependability, and commitment to your community of where you live. A lender may look at your housing situation as well, meaning, who lives in the house with you.
This is not necessarily a factor for not being approved for a personal loan, but it can question your reasoning for the loan, especially if they are familiar with your housing issues. Another eligibility factor is your time at your employer.
Another factor of my personal loan basics list is to consider is how you plan to pay the personal loan. Almost every lender office would prefertheir clients or applicants to have a steady job. Lenders that approve loans also look at the monthly income for a loan to determine the debt to income ratio.
The minimum income annually accepted by lenders is usually around $15,000. Some lenders however, will not accept incomes that are less than to $30,000. Your best option is to shop personal loans by either calling around or searching the internet for the best deals.
Some people like to work with lenders they already know or feel comfortable sharing their personal information with. For those needing extra assistance, you can get personal loan online help at Loanry.com. The site provides the personal loan basics about income requirements needed when you apply for a loan.
Are there any Credit Requirements?
In many types of loans, there are always credit requirements. Nearly one half of Americans hold Credit card debt. Some people are smart by staying within their limits or at least try to keep their credit limit at or less than 30% of the credit limit. Many credit card companies may even reward clients for staying with the 30% limit by increasing their credit limit over time.
However, it can be hard to do so and using your card too much or too often can increase your balance, along with lowering your credit score. So why is this important? Having a low credit score makes it difficult to get personal loan online help or with a lender in person. The credit score for a personal loan should be greater than 580, according to Rebuild.org.
However, a score closer to 630, is probably ideal. Rebuild.org also states that applicants who are applying for a personal loan should have at least $1000 per month in verifiable income.
As mentioned earlier, your income plays a vital role in being approved for a personal loan. Plus, it will help in paying off your personal installment loans as well. Part of understanding the good and bad decisions about personal loans, is knowing the Pros and Cons of them.
Pros and Cons of Personal Loans
There are Pros and Cons to every financial commitment. Knowing if a personal loan is the right call for you, will make a world of difference for your financial future. Some personal loan basics is researching Pros and Cons of loans. Here is a small list of some of the best, (and not so best) reasons to shop personal loans. If you need more assistance about the Pros and Cons of personal loans, you can get personal loan online help at Loanry.
Personal Loan Pros:
Paying a lower interest rate compared to credit cards- If you plan to consolidate two or more credit cards, then you may get a chance for a lower interest rate than you previously did with the cards alone. Lenders may offer a lower rate, due to a high loan amount.
Having only One payment- Consolidating your credit into one single payment each month makes it so much easier to keep track of where and what you spend your money on.
Building up your Credit- It’s true. When you open another credit account, it gives your credit a boost. It may just be a few points, but it can make a difference from a poor rating to a fair score.
Opportunity to a fixed rate- By getting a fixed rate, you don’t have to worry about your interest rising. Personal installment loans have a tendency to be high on interest, but this keeps it from increasing.
Personal Loan Cons:
Not enough debt- the worst time to get a personal loan is when you really do not owe too much or very little. For instance, if you can see yourself paying off a small credit card in just a few months, then there’s really isn’t a reason to deal with a lender for such a small debt. You will be wasting your money, and the lender’s time.
Getting sucked into a financial trap- As much as it seems like a good idea to get one lump sum of money to take care of a bundle of credit cards, a vacation get-a-way, or a special surprise to your spouse, sometimes this may cause a person to accumulate even more debt! The idea in consolidation is pay it all off, in one monthly bill. However, if you keep spending on the card, (which you were supposed to cut up), you will never be out of debt.
Having too high of monthly payments- depending on the loan amount, the interest rate, and how long the term is, your monthly bill can be higher than the average credit card.
What Else Too Should You Know Before Getting A Personal Loan?
Other personal loan basics to know before getting a personal loan is how the lenders get your credit information. Lenders look at the FICO score of the applicant. This score is based on several factors. Every lender gets their information from either one of the three credit bureaus; However, in some cases from all of them. What they provide to the lender is how well you (the applicant) have managed your finances and if you are working toward financial stability.
The factors that are the most important is if you have any credit cards going to collections, if you have recently claimed bankruptcy, have maxed out your credit limits, and have accumulated any outstanding balances.
These are red flags to personal loan lenders and I encourage you to stay away or proceeding to allow them to occur. Another thing to watch out is Store-based credit cards. I know, we have all done it one time or another. You get a credit card just for the use at one particular store. It may seem like a great idea at first, but adding another Visa or MasterCard in your wallet, on top of your already struggling credit problems, means another monthly bill you will have.
How do You Get A Personal Loan?
Getting a personal loan is not as hard as one may think. Most Personal loans can take about a day or so to get approved. However, online lenders may be quicker than the traditional bank or credit union. I have heard that some online loan lenders can approve a client in less than a few hours; however, these lenders may charge a higher interest rate for faster approvals.
Some basic steps to know about getting a loan. According to Loanry.com, First, you should start by paying off any outstanding loans. Second, a respected lender or loan office you can trust. It may be a good idea to review any comments about the loan office, good and bad. Next, go ahead, apply, and be compliant to all term loan term. Last step, secure collateral if necessary by the loan agreement. To know more about personal loan basics and how they work, you can get personal loan online help at Loanry.com.
The Best Personal Loan Companies
To truly understand everything you need to know about personal loans is to do research on the top personal loan lenders nationwide. Beware! There are many that want to scam people by charging exceedingly high rates or their monthly personal installment loans agreement is not cost effective. But have no fear, I have found that going to creditable sites, provides the best rankings or statistics about money issues.
They are also very is helpful in making your final decisions on personal loans. The USNews website, lists what are the best personal loan companies that accepts good or fair credit, have decent APR ratings, has flexible terms, and fee information. Many are very common throughout social media. To read more on each of the lenders, and a detail look of what they offer each client, go to USNews.com
Top Lender Picks
- Best for well-established credit, low APR and no origination fees: LightStream
- Best for good credit, no origination fees and a range of offerings: SoFi
- Right for good credit and low APR with merit-based qualifications: Earnest
- Best bank for good credit with a wide range of loan terms: Discover
- Best bank for fair to good credit with merit-based qualifications: LendingPoint
- Right for fair to good credit with a co-signer option: LendingClub
- Best for fair credit with flexible approval requirements: NetCredit
- Best for fair credit with a low APR: FreedomPlus
Learn the Basics of Other Types Of Loans:
About the Author – Penelope F
Ethan founded OfferEDGE in Dec 2013 with the mission to unify the financial quadrants through a system that allows businesses to be seen when consumers use a Single Sign On across Lending, Credit, Money and Real Estate. Taub invents the offers and IP, while overseeing all aspects of the company. He also has orchestrated the company’s earned media across the brands Loanry®, Cashry®, Debtry®, Budgetry®, Billry®, Taxry® and more. This includes over 500 publications that have been featured across the web.
He has more than 18 years of experience in C-level Management, Sales, Marketing and Product Development across billion-dollar brands to innovative technology start-ups. Taub holds a degree in Economics from the University of California, Berkeley.