Everyone needs a little extra cash sometimes. Whether it’s to pay off some unexpected expenses or make a big purchase, having the money on hand can make all the difference. Personal loans are so outstanding that they give you access to a large chunk of cash for a while, and then you pay them back over time (with interest).
However, borrowers with poor credit often find themselves unable to get a loan. And that’s OK—you’ve got options. Some lenders specialise in helping borrowers with debt records get the loans they need.
But what if you don’t know what kind of loan is best for your situation? What if you’re not sure how much money you should ask for? What if the whole process seems too complicated? We’ll go over what factors determine your interest rate and how to use them to your advantage.
Check your credit score.
You must understand where your numbers stand and what they mean. If you find your credit score is below average, there are ways to improve it before applying for a loan.
You can determine your Credit scores by several factors: payment history, debt amount/utilisation ratio, length of credit history, new credit inquiries and types of credit used (i.e., revolving accounts like credit cards versus instalment loans). They range from 300-to 850 points, with higher scores indicating better financial commitment and responsibility.
However, having a low credit score doesn’t mean getting a loan will be impossible. There are other ways of determining how risky it would be for lenders to lend money to applicants with poor borrowing history than just looking at their score alone!
Shop around for the lowest interest rate.
If you’re asking, “What is a good annual percentage rate ( APR) for a personal loan?” The answer lies in savvy shopping. Before applying, you should be sure to compare offers from multiple lenders and choose the one with the lowest interest rate, not just the lowest monthly payment. The APR on each loan is how you’ll truly determine the cost of your loan—it’s always worthwhile to compare APRs to find the most affordable option.
Sometimes, you can express APRs as a range; if they are, you want to aim for the lower end of that spread. A Roth IRA(individual retirement account) may also be an option if your lender says you don’t qualify for a loan because of bad credit scores or lack of savings or income.
Look at the total cost of borrowing money, not just the monthly payment.
Let’s look at this from a different angle. If you’re borrowing $200 each month for three years? You can solve this by multiplying $200 by the number of months in three years (36). It gives you several $7,200. Now, how much interest are you paying? The difference between the amount borrowed and the total cost comes out to be precisely what the interest is:
$7,200 – $6,000 = $1,200
So if your loan carries an interest rate of 10%, you will pay 10% each year on top of your original loan amount or 30% over three years. That’s why it’s essential to look at the total cost and not just monthly payments when comparing rates.
Consider a secured loan if you can’t qualify for an unsecured one.
If you don’t qualify for a personal loan through traditional lenders, you may want to consider a secured loan. A secured loan requires collateral, like equity in your vehicle or home. These loans tend to have lower interest rates than unsecured loans because they’re considered less risky by the lender due to their security.
Using an asset as collateral can be risky since if you default on your loan, you could lose whatever you used as collateral. You’ll also need to make sure that the asset is worth enough to secure the amount of money you’re looking for and that it belongs solely to you.
While this can seem like a good option if all else fails, it’s still important not to rush into anything before understanding all of the pros and cons involved with this type of loan to be aware of how your decision will affect your finances in the long run.
As discussed above, interest rates on personal loans will likely vary in various factors. You’ll want to look at all these features before deciding which loan is best for you. The bottom line? Personal loans can be ideal if used wisely, and it’s up to you to find one that meets your individual needs.
Interesting Related Article: “A beginner’s guide to personal finance“