There comes the point when there is an urgent need for a financial boost to meet an immediate or unplanned expense. The key is to have done your due diligence before committing to any liability. In this article, you’ll find a helpful guide covering the different personal loan types, their fees, and what it takes to qualify for one.
A personal loan is a type of credit offered by banks, online lenders, credit unions, or sometimes even non-traditional lenders. It can be used for virtually any purpose that the borrower wishes. Usually, it’s for acquiring big-ticket items, but its other varieties are better suited for getting over a financial hitch or paying for an emergency expense.
One of the main characteristics of a personal loan is that borrowers pay fixed monthly installments for a specified term until the entire loaned amount is repaid.
And it’s also classified into two main kinds: secured or unsecured. An unsecured loan means that it doesn’t require collateral to obtain it, while the secured kind does.
To qualify for a personal loan, creditors assess your application and base your eligibility on two simple factors: credit and non-credit.
With non-credit factors, lenders need information about your age, location, citizenship status, employment, and income. So, typically, you would have to provide identification proof (passport, social security, etc.) and proof of address (bank statement, credit card statement, utility bill, etc.), and income (like tax returns or pay stubs).
What creditors are looking for here is if you meet the non-credit factors. For instance, you have to be of legal age to qualify for a loan and that you are a U.S. citizen or permanent resident.
On the other hand, with the credit factors, the lender would have to make a credit inquiry. This means that the creditor needs to review your credit score, credit history, and other factors that may affect your ability to repay the loan you are applying for. This process allows them to determine what kind of borrower you are and their risk in lending you money.
Apart from the standard credit product you can get from traditional banks or credit unions, there are variants of personal loans that might be more apt for your financial situation. Here are some that you can consider:
This type of loan is usually obtained by borrowers who need to meet immediate or emergency financial obligations. The usual repayment terms for short-term loans don’t last more than a year, and the loanable amounts are also relatively smaller.
As its name suggests, an installment loan is a kind of credit that allows you to pay back the borrowed sum in installments. Installment loans can have payment terms from three months to two years, and you also have the option to pay it in full without incurring any prepayment penalties.
This personal loan type has a particular purpose: to help a student pay for post-secondary education tuition fees and the other costs associated with it, such as school supplies and living expenses. Private lenders of student loans would typically need a cosigner in an application as most students don’t earn an income and have no credit history.
This loan type is designed to help borrowers with no credit or even with bad credit to improve their credit scores. In a credit builder loan, the borrowed amount is held by the lender and will only be available to you after you accomplish all payments toward it. Then, these are all reported by the lender to three major consumer credit bureaus: TransUnion, Experian, and Equifax.
Here are some of the aspects of a personal loan that you should know about before you apply for one:
While most lenders advertise a loanable amount range, the precise sum approved to you will depend on a few things, and one of which is your credit record. For instance, some lenders may lend up to $100,000, but it is only available to borrowers who have an excellent credit score and a steady income source.
The amount you can borrow may also rest on the personal loan type you applied for. Of course, if it’s a credit-builder loan, then you can typically borrow from $500 to $2,000. If you go for something of a secured type of credit, then what you can borrow will depend on your collateral. Assume that your collateral is the money in your bank account, then some lenders can let you borrow 90% of it or even the entire amount.
The final amount may also depend on your debt-to-income ratio. Lenders prefer a debt-to-income ratio of about 28%, meaning that only 28% of your monthly gross income goes to loan payments.
In short, a few factors will determine the final approved amount. If you are somehow unsatisfied with the sum approved to you, lenders would sometimes accept a co-applicant to carry the responsibility of repaying your loan if you default. With a consigner, you can get a higher loan amount and possibly even better terms.
Native American personal loans, usually referred to as “tribal loans,” are loans offered by lending entities owned by Native Americans. Tribal loan lenders are mostly exempted from state laws and federal regulations, but this argument isn’t applicable in all jurisdictions.
A tribal loan is a credit type that is similar to a short-term loan, such as a payday or emergency loan. It is characterized by low borrowable amounts and high-interest rate charges. The amount you can borrow from tribal lenders can be up to $1,000. However, it usually comes with an annual charge of over 700% — or sometimes even more.
American citizens have various options to choose from when finding the right type of credit. And no matter the financial need, there is usually a specific solution tailored to it. The only thing you, as the borrower, have to do is know what these options are and be aware of the different charges associated with them. But regardless of your choice, the most important thing is that the terms you will agree on are not too inconvenient that it will be too difficult for you to fulfill.
No, the usual requirement to at least qualify for a personal loan from a U.S. lender is to be an American citizen or a permanent resident.
Yes, international student loans are available for international students studying in the U.S. What is not available for international students are federal student loans as this is only for U.S. citizens.
If you don’t pay back a tribal loan, the most likely outcome is a lawsuit, even if the charges you pay on your loan are exorbitant since most tribal lenders are immune from state laws and federal regulations.
A personal loan amount of $100,000 is a high amount for most lenders, which is why a steady and dependable source of income plus great credit records is necessary.
There are loan options for you to choose from if you don’t have the best credit score. You can go for short-term loans like payday loans or emergency loans. If you have some time to spare, you can also start improving your credit through a credit-builder loan.