For many Americans, financial speed bumps often come unannounced and bring their lives to a virtual standstill. At least, that is, until they find a way to overcome the monetary hurdle. To rev up their financial engine and run on four cylinders again, an increasing number of cash-strapped consumers are turning to personal loans. These lines of credit have proven to be a reliable and cost-effective source of emergency funding as well as a transformative tool enabling borrowers to enhance the quality of their lives and to address money crises. Personal loans are alternatively dubbed cash advances, fast cash loans, guaranteed online personal loans, and payday loans. They serve to finance a plethora of purposes, most commonly the following:
- Consolidation of debts
- Business start-ups
- Funeral expenses
- Holiday vacations
- Medical expenses
- Cosmetic surgery
- College education
- Home purchase
- Home improvements
- Purchase of appliances
- Auto repair or purchase
- Special events such as weddings
- Credit building
One of the most beneficial uses of a personal loan is for the consolidation of debt from numerous sources such as store cards and credit cards. By making timely payments of consolidated debt, borrowers may improve their credit rating. Personal loans are issued from a variety of institutions such as credit card companies, private lenders, and banks. Consumers may obtain a personal loan by applying online- a process that is simple, expeditious, and convenient since it can be effectuated from one’s home or office and with a few clicks of the mouse. There are two main types of personal loans: 1) secured personal loans and 2) unsecured personal loans.
1. Secured Personal Loans
These require prospective borrowers to pledge collateral or security such as real estate, a home, a vehicle, or another valuable asset. Due to the fact that the lender’s risk is mitigated by the collateral’s presence, recipients are offered the maximum loan amount and a low rate of interest. They also benefit from an extended repayment term and may choose between fixed or adjustable interest rates. Since creditors have the assurance of security, an applicant’s credit history becomes immaterial. Therefore, individuals with a bad credit score as a result of default, late payments, county court judgments, or bankruptcy, or other factors may avail themselves of secured personal loans.
2. Unsecured Personal Loans
These do not require borrowers to offer the lender any collateral or security as protection in the event of default. Two types of unsecured personal loans are payday loans and credit card loans. Applicants with a good credit rating have a higher chance of procuring an unsecured personal loan. While interest rates vary from one creditor to the next, they generally depend on the following elements: 1) the repayment period, 2) the borrower’s income, and 3) the authorized loan amount. Typically, consumers with a high credit score qualify for loans in the range of $100 to $5000. Individuals with a tarnished credit history, whether due to bankruptcy, arrears, county court judgments, past repossessions, defaults and/or another adverse mark on their credit report, are also eligible for these loans. However, they will generally pay a higher interest rate and obtain a loan of a lesser amount, typically ranging from $100 to $500. Poor credit borrowers must usually provide references, a recent bank statement, and proof of employment.
Unsecured personal loans often feature short repayment periods. Since there is no collateral to verify and appraise, processing is speedy and documentation is minimal. Unsecured bad credit loans are designed for individuals who are coping with unemployment and are in need of quick cash to cover day-to-day expenses while focusing on job hunting and on restoring their financial equilibrium.
Bad credit personal loans are aimed at consumers with battered credit or no credit and who would not otherwise be eligible for traditional loans. Since lenders incur a considerable risk in insuring this segment of the population, these loans tend to carry a higher interest rate. To ensure that applicants will be current in their loan payments, lenders evaluate the former’s financial position and income. A personal loan for poor credit is typically available in an amount ranging from $5000 to $75,000. The repayment term, which generally ranges from 3 to 20 years, determines the interest rate. Bad credit personal loans enable borrowers to start on a clean slate and repair their credit rating.
High risk personal loans, which are also referred to as unsecured, personal, and payday loans, are a boon to consumers with a tainted credit history. These small, unsecured, temporary loans, which may be utilized for a garden variety of purposes, assist borrowers in paying off outstanding debts and taking care of emergency expenses. By repaying their bills in a timely manner, borrowers may enhance their credit rating. High risk personal loans do not require a co-signer or collateral. Moreover, there are no long applications and forms to complete, and the loan funds are instantly deposited in the borrower’s account.
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