For Americans in search of credit or a cash advance, opting for personal loan may seem like your only course of action. While an unsecured loan is appropriate in certain circumstances, it's important to explore all of the fine print prior to making a decision.
There are a number of factors you need to take into consideration before applying for a personal loan. These considerations include the loan's interest rates, prepayment penalties, overdraft fees, add-on terms, and other restrictions set by the lender. In this article, we'll take an in-depth look at when it's suitable to take out a personal loan as well as the specifics.
Compare Your APR and TAR
When contemplating a personal loan, it's important to bear in mind that their interest rates are typically higher compared to secured loans since there is no collateral associated with it. Nonetheless, you may be able to qualify for a personal loan with an affordable APR if you have an adequate credit score. Another crucial metric to take into account is the total amount repayable (TAR). This shouldn't be confused with the APR which is the standard cost of the loan over the annual period. The TAR includes the interest as well as charges you will be responsible for from the first payment all the way through the last
Have average to poor credit?
Here's a tip-you may have a better chance of receiving a personal loan if you put up collateral or have a cosigner.
Documents to Bring When Applying
In most cases, when applying for a personal loan you'll be asked to provide some sort of identification (i.e., driver's license, state issued ID, passport, etc.), a verification of your permanent address and proof of income. What's more, the issuing lender may ask for your employer's information, any sort of debt you carry and gross income.
Risks When Taking Out a Personal Loan
As with any type of financial undertaking, there are risks to be aware of. Since a personal loan is unsecured (does not have pledged collateral), if you fail to repay your loan amount the lender retains the right to settle the pursue repayment via legal action like garnishment of wages, or other extreme means.
Explore the Different Types of Unsecured Loans
There are a number of types of unsecured personal loans available. Signature loans are the most basic type and encompass those available at formal banks and credit unions. Repayments are usually paid on a fixed monthly amount and amortized over time until the entire loan is repaid. As previously mentioned, these typically require good credit to obtain. Student loans are another form of unsecured loan, used to fund an education. For those looking to pay for scholarly pursuits these are the foremost choice because they have relatively flexible repayment options, interest subsidies and grace periods. Peer to peer loans are the another form of borrowing except rather than borrowing from a bank, the traditional lender, you request a loan online (from a P2P service) and remove the bank from the equation.
Keep all of these options in mind before choosing a personal loan. If you have any concerns, be sure to bring them up with the lending institution or bank.