Most personal lenders will give you money ranging from $2,000 to $40,000. Without breaking the bank, an unsecured personal loan might actually assist you handle your urgent expenditures. With a decent credit score, you’ll have a better chance of getting a loan with a reduced interest rate.
If you have a bad credit history or none at all, you will be limited in your options. Although some lenders may take into account factors other than your credit score. Here are some things to think about while looking for a personal loan.
Credit is important
Secured loans, or loans backed by an asset such as your home if you own one, normally have higher interest rates. Because these rates are determined by your creditworthiness, having a good credit score might help you discover a cheaper APR (Annual Percentage Rate).
Unsecured loans, often known as instalment loans, are available from almost all retail banks. You repay the lender over a predetermined number of months, making fortnightly or monthly instalments until the debt is paid off. Peer-to-peer lenders, such as Society One or Harmoney, who offer investor-issued loans to consumers with strong credit, can occasionally give borrowers with great credit even cheaper rates than retail banks. Always keep that in mind when you’re out shopping.
Borrowers with a fair credit rating have a variety of alternatives, albeit interest rates are often higher. When making underwriting judgments, certain lenders may take into account other aspects such as your employment history/security and earnings potential.
What you need to apply for a personal loan
During the application process, here are the documents you’ll be required to supply:
Identification – passport, driver’s licence
• Verification of address – utility bills, recent mail or rent/mortgage statement
• Proof of income – pay slips, last 90 days’ bank statements or tax returns
You may also be asked to provide the following:
• Medicare number
• Monthly debt obligations (rent, pre-existing loan or credit card debt)
• Gross income
• Employer’s name, work address and phone number
• Email and phone number
• Previous addresses
• Date of Birth
After providing this information, or beforehand, you will need to specify the amount of money you want to borrow and the duration of the loan (typically two to five years). Bare in mind the longer it takes you to pay the loan off, the more you’ll have to pay back in interest. You should only borrow what you need, there is no point in paying the lender more interest than you absolutely have to, always try to keep your costs low.
How to find the lowest rates?
See if you qualify for a 0% credit card. If you have a good credit rating, you can probably get a credit card that has 0% interest on purchases for up to 12 months or longer, and that may be less expensive than taking out a personal loan.
Consider a secured loan instead. Should you own a house, consider using it as collateral in order to get lower rates. A home equity line of credit can often be cheaper than an unsecured personal loan. Keep in mind that using your home as collateral means that if you default, you could lose your home.
Pay as much of your credit card balance off as you can before you apply. The outstanding balance on your credit card – even if you pay it off at the end of the month and never pay interest – counts against you when a lender runs a credit check.
Make sure you shop around. Online lenders offer very competitive rates, especially for borrowers with excellent credit.
What to look out for with personal loans
If you ignore the fine print and don’t review your loan agreement fully, you might find out the hard way that you agreed to less-than-ideal terms. Look out for any little pitfalls that might send you tumbling.
Prepayment charges. Most online lenders do not charge a fee for paying off the loan before a certain date, called prepayment charges or exit fees. Always keep a lookout for the fine print “no prepayment penalty” on your terms when you apply.
Accidental overdrafts. Many lenders ask for automatic payments from your current account. Ensure you have enough money in your account to make your repayments or you may be in danger of overdrawing your account and paying an overdraft fee. To avoid this little accident, consider setting up a low balance alert with your bank.
Final advice. Taking out a personal loan can be useful to relieve you from debt and cover unexpected costs, but tread with caution and assess your options before making a choice. Find the lowest rates, borrow only what you need and always pay your debts on time to avoid unnecessary charges.