A car, home, holiday to a favourite destination… Who wouldn’t want all that? A few years back it was not so easy to plan all that especially if you did not have the necessary funds, now it is! Personal loans make it possible for everyone to borrow money for any kind of requirement. Personal loans are literally packaged to cater to the financial needs and financial status of the borrower.
“Personal loans” is the generic term for loans for own use. A Personal loan is in fact a lump sum which is borrowed from a bank or building society or any other lender. The Personal loans market is huge and so competitive that everyone can now have access to a customised personal loan.
Personal loans can be secured or unsecured; however, few lenders translate personal loans as unsecured loans. A major characteristic of an unsecured personal loan is no collateral. This enables tenants to also have an opportunity to apply for loans. However, lack of security or collateral with unsecured personal loans is interpreted as high-interest rates in loan borrowing terms.
This makes secured personal loans a much viable option as they have a comparatively low-interest rate. The interest rates for secured personal loans is low since security is being offered for their approval. According to the convenience and requisites of the borrower, he can apply for either of the personal loans. Personal loans that are secured are available for amounts of the likes of £5000-£75,000. The amount offered as personal loans is dependent on the collateral offered.
Loan term for personal loans extends from 1-25 years. Unsecured personal loans are provided for amounts ranging from £5000-£25,000 with a loan term of 5-10 years. With personal loans that are secured the approval time is lesser than for no collateral loans as they are usually required to be reviewed.
Personal loans can be put to any use and there is no restriction by the lender as to how you would use personal loans. Most commonly personal loans are used for car purchase, home improvement, vacation, weddings etc. Debt consolidation is another way to use personal loans for constructive purposes. Debt consolidation consolidates high-interest rate debts into a single low-interest consolidated loan.
Personal loans are much cheaper than other alternatives like credit cards, overdraft etc. Eligibility criteria for personal loans are usually reliant on credit score. Anyone who has ever indulged in loan borrowing has a credit score based on past financial payment performance. A credit score is a three-digit number with which the creditor decides whether to extend your loan or not.
Before applying for personal loans, check your latest credit score. Credit score ranges from 300-850. Credit score lower than 580 is considered to be having credit problems. A credit score below 550 will be interpreted as bad credit by personal loans lenders, yet even though considered a liability, it does not prevent anyone from getting approved for personal loans.
Personal loans for bad credit are offered to people with any kind of bad credit problems. Late payments, arrears, defaults, bankrupts, foreclosures are given a prompt response when applying for personal loans. Personal loans for bad credit not only provide the finances when needed but can give an opportunity to improve credit.
This certainly may have long term benefits for those who have bad credit, please note that personal loans lenders have varied criteria, therefore, different lenders will offer different terms and conditions for personal loans.
Borrowers have lots of choices for personal loans, so if you have to borrow, do so wisely.
Take your time and compare loans in the UK. Comparing loans gives you the ability to make a better choice. Comparing loans is not that difficult and requires some simple calculations.
Many personal loans sites have the provision to compare loans. All this advice comes in handy after you have paid heed to the first basic rule of loan borrowing. While borrowing any kind of personal loans, please consider carefully if it is necessary to borrow personal loans? Take personal loans only if it is affordable.
Eventually, personal loans must be paid back. Financial institutions are always tightening their control over us. We are constantly in the struggle to build up funds to provide for something or the other. Find the best solutions to raise the finances to cater to your needs, practice frugality if necessary.
Below is an article on another type of loan that our friends at Payment1.com
have shared with us:
Payday Loans: A Guide (and Warning) for First-timers
Some of us go through times when we don’t seem to make ends meet, and when we are pushed to the wall with very limited options to work with, we might look for solutions that are quick, but not necessarily sound. A payday loan is an example of this.
Payday loans are very short-term loans that can only go as high as $1000, depending on state legal maximum, and must be repaid on your next payday, hence the name. To get the loan, you must write a check for the amount borrowed plus a fee. The due date is usually two to four weeks after the loan was made and the exact due date is agreed upon on the payday loan agreement.
Payday lender stores and payday lenders online will have to verify your income, as well as your checking account. They do this because the money you borrowed, and the repayments will be coursed through this bank account. The lenders will require that your paycheck be automatically deposited to this verified account and the post-dated checks coincide with your payday. This ensures that the lenders are paid back on the scheduled date.
If you can’t pay your debt on time, lenders usually allow you to roll the debt over so that the loan gets extended. You will have to pay interest every two weeks while the original balance remains outstanding. Some states regulate fees and interests by outlawing them altogether or imposing caps on the number of times you can renew.
Why are payday loans not a good idea?
The most glaring pitfall with payday loans is the cost. The finance charge can cost between $15 to $30 to borrow $100, with annual interest (APR) going up to 400% or more. For loans that last two weeks, finance charges can result in interest rates from 390 to 780% APR. For comparison purposes, credit card APRs range from 12% to 30%.
In the UK, the APR rate on Payday loans can be as crazy as 1333%, if you are in the UK, my advice would be to stay clear of Payday loans! Such extortionate interest rates should be illegal.
Payday loans can really be attractive as it requires no credit checks. All you need is a bank account with relatively good standing, stable source of income, and identification. Payday loan lenders do not necessarily check for the borrower’s ability to repay, but rather the lender’s ability to collect; and this is the very reason payday loans can create a debt trap.
People who take payday loans usually end up trapped in an ongoing borrowing cycle. One payday loan almost certainly entails the need for a second, then a third, and so on. The whole reason for the need for a payday loan is the lack of money for an emergency, and since regular earnings can only cover for regular expenses, chances are borrowers are not better off two weeks later.
What can you do to avoid having to take out payday loans?
The good news is you can take precautions, so you won’t find yourself taking out a payday loan for an emergency.
- Build an emergency fund. No matter how small, setting aside an amount every payday can be a huge help in the long run.
- Build good credit so that you can borrow from mainstream lenders.
- If you find yourself always in a tight budget, consider taking a second job or a side job to increase your income.
- Declutter and sell stuff you don’t need anymore. Having a couple of garage sales every year can help you save a few hundred dollars and keep your house free of clutter, as well.