It is important to understand the types of personal loans available to you before taking any action to apply for one. Depending on your personal finances and how much you are looking to borrow, you will want to do your homework to find the loan that best fits your financial situation.
Personal loans come in two basic variations - secured and unsecured. A secured loan uses personal property as a form of collateral. These loans can also use another person's credit as collateral. A co-signer signs the loan as well, promising to pay if the initial borrower fails to do so. If the borrower for any reason does not fulfill the secured loan requirements, the lender has the alternative way to collect payment.
Unsecured loans are also known as signature loans. The loan is processed based on the trust of the applicant's signature alone. These borrowers are often people with higher credit ratings and have proven their trustworthiness. Loan amounts can run higher and interest rates are fair. Credit-worthy customers are rewarded for their money management skills.
It is always best to call or visit a variety of banks. Start with your own bank or credit union, but don't stop there. Some bankers will not quote an estimated rate over the phone, but they should be able to give you a range. It is never recommended to apply for multiple loans just to compare interest rates. With each application there is a hard inquiry into your credit report and with each check you risk losing points off your credit score. The lower your score, the lower the rates become. Hard inquiries also leave their own signature. In other words, each time a banker checks your credit, it is noted and every other banker can see it when looking into your credit for themselves. When banks see many inquiries, your application begins to lose credibility. A lack of credibility will often result in secured loan offers only.
There are several alternative money options when bank or credit offers are not approved. People who are credit challenged may not own what the banks and credit unions require for collateral. Alternative money options tend to have much higher interest rates and shorter payoff terms. The loan amounts are smaller but are often more difficult to pay off. Less significant collateral is accepted. These types of loans are not installment loans and the payoff consists of the full amount borrowed plus applicable fees. Examples of these loans are car title loans, payday loans, cash advances and pawn shop loans. They do serve emergency purposes but payoff difficulties may make money matters worse. Use caution when choosing alternative methods.
Before you actually apply for any type of loan, it is important to understand your personal financial situation. If you can take time to improve your credit score, you will save money by obtaining lower interest rates. If your finances cannot wait, at least take time to do your homework. Don't ever take a banker's or direct lender's word that their services are the best because you will hear that story everywhere. Do your homework. Many people choose credit unions over banks because they can offer average customers better rates. Find out what you qualify for. If you have to use alternative options, investigate the lenders thoroughly. Talk to friends and co-workers to see what institutions or lenders they recommend to get a head start on your research. Make your decision based on the facts you find and make sure you can fulfill the loan requirements before you borrow.