With inflation, increase in fuel prices, and rising living costs, money is tight for many people, including those who earn a reasonable income. As budgets are stretched, fewer people can save for a rainy day or a high-ticket expense.
If you need cash and don't have money saved, you can borrow money in the form of a personal loan. Personal loans are a great option since you can use them for anything.
Types of Personal Loans
You can get a personal loan from a bank, financial institution, and various other lenders. Since personal loans are considered short-term, you typically have 2-7 years to repay them.
There are two main types of personal loans:
Secured Loans
If you opt for a secured loan, you must provide collateral. Collateral minimizes the bank's risk because if you default on your loan, they will keep your collateral to recover the costs.
Common items used as collateral include your house or car. Since the risk is lower for the bank, the interest on secured loans is lower.
Unsecured Loans
Unsecured loans are less risky for borrowers since they are not required to provide collateral and will not lose an asset if they fail to repay the loan. However, because this loan is a bigger risk for the lender, the interest rate will be higher than that of a secured loan.
Applying is Easy
Applying for a personal loan is easy. You can secure personal loans with online approval by submitting your application online. This is convenient, as the process is quick and you’ll know within minutes if your application is successful.
You may apply directly to the lender you would like to borrow from or use a lender network site to apply to several lenders with one application. When you apply on a lender network site, your application is sent to a few lenders who will review the application and send you quotes. This will save time if you want to compare loan offers.
Alternatively, you can go into the bank or lender's storefront to apply in person. Usually, banks take 1-7 days to process loan applications. So if you need money in a hurry, applying through an online lender will be better.
Consider the Loan Offer Carefully Before Accepting a Loan
You may be eager to get the money into your account when your loan has been approved. But before signing the loan offer or accepting the money, go through the details and fine print. Look out for the following:
- Interest rate and fees
- Term - how much time you have to repay it
- Monthly installments to be paid towards the loan
- Penalties for defaulting
Only accept the loan if you're comfortable with all the terms and conditions. If something is unclear, it’s best to query it before you take the loan. Once you've accepted it, the lender assumes you understand what you’re responsible for and agree to it.
What if You Don't Qualify for a Personal Loan?
Most individuals apply to banks and traditional lenders when they need a personal loan. Although banks offer loans with lower interest rates and reasonable terms, they have strict criteria to meet before providing you with a loan. If your credit rating is low, you won't qualify for a personal loan from a bank or traditional lender.
You're not out of options, though. There are other means to secure a personal loan. If your credit score is low, but you need a loan, consider the following:
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Existing Line of Credit
Most people already have a credit card, and if you only need a small amount of cash, you can use this existing line of credit. You have two options if you'd like to use your credit card.
The first is to link it to your banking app using internet banking. When linked, you can transfer funds from your credit card to your checking account and then wire it to whoever you need to pay or withdraw the funds from your account.
The second option is to set up a PIN on your credit card, which you can do online or with the credit card company. Once you've set up your PIN, you can withdraw funds from an ATM.
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Co-Signed Loan
Another option is to apply for a co-signed loan. This option allows you to apply for a personal loan at a bank or with a traditional lender, but you will need to find a co-signer with good credit.
When you apply with a co-signer, you can secure a loan with low interest and good terms if your co-signer has a high credit rating. The co-signer will not have access to the loan, but if you don't repay it, they will be responsible for repayments.
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