Personal loans are one of the products you can borrow from any lending institution like banks and online lenders. People use this for various reasons like educational purposes; home improvement; debt consolidation; for starting a small business.
The number of online lenders for personal loans has increased over the years. They want to challenge banks and credit card companies. Online lenders have simple requirements and methods of applying for personal loans are streamlined.
This article tackles about the benefits and disadvantages of personal loans and how you will apply for one.
Pros and Cons
Here are some advantages of getting a personal loan:
- Lending options for personal loans are flexible. Deals can be tweaked depending on individual circumstances.
- This is ideal for borrowings involving a small amount of money.
- You don’t need a collateral to have your loan approved.
- Quick approval. Your loan will be processed and approved in no time as long as your documents are intact.
- You have the option to settle your loan early.
Drawbacks of this loan:
- Failure of payments means risking your credit score.
- A high-risk loan mean higher interest rates. This is an unsecured loan, so interest rates are higher than other types of loans.
- Loans are limited to a certain amount.
When to Use a Personal Loan
According to financial advisors, personal loans should be your last option. You can try a home equity loan which gives you a higher net amount and better terms. Try looking for an extra source of income. A personal loan should be your last option because of its high-interest rates.
If you have an impressive credit score, you’ll qualify for low-interest rates. However, lenders will not solely base this on your credit score. They will check whether you have steady employment and whether your debt:income ratio is low.
If you have bad credit score, this means you have to go to other lenders. There are other lending platforms where you can explore like Peer to Peer Lending and credit unions. Otherwise, you have to find ways to increase your credit score.
Criteria for Choosing Personal Loans
To choose the right personal loan company shop and ask around. Check AAACreditGuide.com covers discover personal loans for flexible deals. Follow the criteria below:
Their actual rates must be consistent with their advertised online rates and must be lower than their competitor’s interest rate.
Other than the interest verify the fees they charge. There must be no hidden costs and should be less than their competitor’s fees.
How much is their loanable amount? Best lenders should not set a cap on the amount, giving you more flexibility to choose the amount.
They must offer flexible terms for the needs of their clients.
Their website must be transparent. Interest rates, fees, and loan limits must be detailed on their website.
How long have they been in the business? Verify from online reviews, whether their service is exceptional.
Don’t limit yourself regarding personal loans. Weigh the gains and drawbacks of using online lenders and lending institutions. Find the best personal loan by using the suggested criteria.