Anything that is borrowed with a promise of returning is called a loan. We generally use the term loan, in which a person or organisation borrows a sum of money from another person or organisation in exchange for the promise of future repayment of the borrowed amount. In most cases, the borrower also has to pay a certain fixed amount of interest to the principal value. A lender looks at certain criteria before giving a loan to the borrower. They look at the borrower’s income, his credit score, and the debt levels before offering the loan.
What is a personal loan?
A loan which can be used for any purpose is known as a personal loan. For example, to pay your medical bills, fund home repairs, etc. A major drawback of personal loans is that they are not very secure. People with higher credit scores are likely to get a loan easily with a low interest rate.
How do personal loans work?
Personal loans can be used for any purpose except for paying school fees and other educational expenses or to invest money. To get a personal loan, you need to complete the application, and once the application is approved for a loan, the money is directly sent to your bank account.
Some of the best personal loan companies are :
1 . Light Stream: This is a branch of Truist Bank. Here you get all the services that are required in a personal loan. The repayment is not rigid, rather, it is very flexible and, you can pay according to your financial conditions. These plans are long -term plans, with home improvement loans having the longest terms.
2. Sofi: The rates of Sofi for personal loans are very low. There are very few companies which don’t hide their credit score requirements. This company is one among them.
3. Wells Fargo: This is an online company which provides loans to customers. There are no offline or physical branches of this company. Thus the online lenders provide better online personal loan requirements and terms. But most people find it more safe and feasible to get loans from offline lenders. They generally prefer in person conversations with the advisors of recognised banks or other organisations that provide loans. Their repayment options and policies are very adjustable and flexible. So a person can pay according to his financial status.
4. Avant: It is a very good option for those with less than excellent credit. It is also known as fair credit. This company gives loans to almost everyone but people with a score of more than 600 have greater chances of getting a loan. If your credit score is 600 or less , then you have to pay a comparatively higher amount of APR.
5. Happy money: This company was formerly called as Payoff. Persons with a low credit score can get loans easily through this company. Also, it charges a lower APR than the other companies and it has a flexible repayment policy. This company allows you to check the rate and choose a repayment option according to what is suitable for you. However, the loan funding amounts of this company are very low compared to others .
How to choose a lender?
All lenders charge an additional amount of money along with the principal amount during the repayment of the borrowed amount called interest. So firstly one should choose a lender who asks for a minimum value of interest amount to be paid.The borrowers who have very good credit enjoy the benefit of the best interest rates. Before finalising any lender one must compare all the lenders and the total cost of borrowing including the interest rate as well as fees. Some lenders issue loans at low interest rates but change a high amount of fees while others change a low fee but offer loans at a high interest rate. So, one must calculate it manually and find the best lender to enjoy maximum benefits.
Another factor which must be given importance is the repayment period. Repayment period refers to the time for which the borrower must pay the money in order to get debt free. If there is a shorter repayment period, then the monthly amount to be paid will be larger and if the repayment period is longer, the borrower needs to pay a lesser amount per month. Paying more amount in less period is a beneficial deal for the customers.
Best user for personal loans:
Personal loans can be used for any purpose, including paying your house rent or medical bills etc but personal loans are not recommended for purposes like a wedding or vacation. Personal loans can help you to tackle the emergency and saving for an emergency can prevent a person from being in debt.
Pros & Cons of a personal loan:
The pros of personal loans are as follows:
- Lower interest rates: The interest rates of personal loans are generally less than the credit card rates. Also, the interest rates of personal loans are fixed, and they don’t increase if the benchmark interest-rate increases.
- Fast funding: Another benefit of personal loans is that you get the loan either on the same day or within a few days of applying. So, you do not have to wait for a longer period in order to get the money.
- No collateral: Almost all personal loans do not require any collateral. Personal loans are unsecured loans means you do not have to register your property or your house or your car to the company as an asset.
- Predictable monthly payments: The interest rates of personal loans are fixed and the amount you must pay per month is also fixed so it helps you to maintain your budget well.
The cons of personal loans are:
- Sometimes harder to qualify: Unsecured loans like personal loans are harder to qualify for than secured loan because in this case, only your credit score and credit history are seen by the lender. Lenders do not give loans to borrowers who have a poor credit score and credit histories or they may offer loan to borrowers with a higher interest-rate.
- Increased debt: Taking a personal loan increases your debt because you have to pay monthly instalments along with interest for the borrowed amount.
- Hurt your credit score: When you apply for a personal loan, your credit score may decrease. This may hurt your credit score.
Alternatives to personal loans:
- Credit card: A Credit card is a good alternative to personal loan, that is if you have to buy money for a shorter period and can repay it within a month, a credit card is the best option. If you are unable to pay the loan in a shorter period, where is the alternative for this problem also. In this case, you can use a credit card with 0% APR. This method helps you to save money that you must pay on interest every month as you can pay the entire amount in a shorter period.
- Cash advance: Another way in which credit cards can be used is cash advance. By this method, you can directly get the cash, and you do not have to purchase from your credit card.
- Home equity loan: Home Equity loans are another type of loan. They offer a lower interest rate and generally a larger principal amount. But they can be assessed only if you own a home.
Is a personal loan right for you?
A personal loan is a good option for someone looking for a loan but is not always the best choice. It only works for a few who have:
- Fair or good credit: To get a personal loan. The borrower must have a good credit score and credit history. People with good credit scores have more chances of getting a personal loan more easily and quickly.
- Able to afford the monthly payments: One should only go for a personal loan if he is very sure that he can pay the monthly payments timely and if he is unable to pay the payment, then his credit score will fall drastically. The borrower will again be caught in debt and it will be difficult for him to get debt free.
- You have limited alternative options: Before taking a personal loan, one must look for other options that are available. If he finds that the other options are unavailable or unfit for him, then only he should go for a personal loan.
How to apply for a personal loan?
- Review your credit score: Before looking for a lender to get the loan, firstly you must look at your own credit score and the credit history that determines whether you are eligible to take the loan or not .
- Compare lender offers: You should not go for a single lender, but you should look at many lenders for their interest rates, fees and other loan terms . After looking at all these, decide the best lender for you.
- Complete an application: Once you have compared the lenders and chosen your lender, you need to do the paperwork and documentation. The lender will look at your credit score in credit history, and if you are eligible, your loan would be approved and you’ll get the amount within the next 24 hours or so.
- Manage your loan: After your loan is approved, just take a quick look at the terms and conditions of the loan and also the payment you have to make monthly and what are the interest rates.
Now let’s have a look at what are the best loans for bad credit. There are many providers who provide personal loans to the borrowers having a bank credit. A few of them are listed below:
- Upgrade: Upgrade is an online lender. These lenders provide personal loans, even to the persons with bad credit score and credit history. They also provide you a 0.5% discount if you choose auto pay as the option of payment.
- Upstart: Upstart is also an online platform. It is based on artificial intelligence. Borrowers with low credit scores and a poor credit history can get loans from this platform.
- Happy money: This is also a good option for those having lower credit scores. People must have a score of 550 to get a loan from happy money.
- Lending club: Lending club is also an online lender. It offers various types of loans. To get a loan from the lending club, the borrower must have a credit score of 600 and also charge a late fee.
- Lending point: It also provides loans to those with lower scores. But to get this loan your minimum monthly income should be $25,000 and they also charge a late fee.