When people financial situation is not sufficient to close their budget gap and need to borrow a big amount of money, applying for a personal loan issued by banks, credit unions or private lenders can be a good solution to cover the expenses.
What does personal loan mean and how does it work?
Personal loan means borrowing an amount of money from a reliable source to repay in fixed monthly payments or installments within a set of time. People should shop around and compare various lenders to find the most affordable loan deal they can get.
When someone apply for a personal loan, lenders firstly check their credit history to decide if they are creditworthy. If the qualify for a personal loan, they will be paid the amount of money they need after signing the deal and will be charged an interest rate which ranges from 6% to 36% due to their credit record, credit score and debt-to-income ratio. That means, the higher credit score you have, the lower interest rate you will be charged. If you do not have enough time to work on your weak credit score but still want to be charged a lower interest rate, you may consider applying for a secured personal loan or finding a co-signer.
Secured/Co-signer Personal Loans
Lenders assess risk of being unpaid before providing a loan and a low credit score can cause you to face sky-high interest rates. But, you still have a chance to receive a personal loan with more reasonable interest rates despite of your damaged credit score: Secured Personal Loans. That type of loan requires you to pledge an asset as collateral. Since you reduce the risk for the lender by offering up a property as security, you may be charged a lower interest rate. But, if you default, you must be prepared to lose the possession of your asset. Also, if you do not have an asset to pledge or if you do not want to take risk of losing your property, you may try to find a co-signer whose credit score is better than yours.
How to apply for a personal loan?
To get a personal loan, you can apply either in person or online.
In both types of applications lenders may want to check your:
- Annual income to check if you meet the minimum income requirements.
- Credit score to assess your creditworthiness.
- Debt-to-income ratio to decide if you will be able to repay.
- Monthly housing payment
- Employment status and your employer’s info
- History of bankruptcy