Personal Loans for Good Credit
When you need extra cash for a wide range of purposes, applying for a personal loan through a bank, credit union or online lender is a great option to consider. You can typically receive your loan funds within a few days through most personal loan programs, and you may be able to take months or even years to repay the money that you borrowed. Personal loans for good credit borrowers are available through a wide range of lenders, but you may want to learn more about these loan programs and lenders before you apply.
How Is a Personal Loan Different Than a Secured Loan?
A personal loan is an unsecured loan, and this means that you do not have to pledge collateral when applying for the loan. A secured loan, on the other hand, has collateral linked to it. An example of a secured loan is an auto loan. If you default on a secured loan, the lender can seize the asset from you. On the other hand, if you default on a personal loan, the lender can hold you personally responsible. For example, the lender could take you to court to force payment, but you will not lose a physical asset. In most cases, you will need a higher credit score to qualify for a personal loan, and you can expect a higher interest rate and shorter term with these loans in most cases. However, you do not need to pledge an asset or place your asset at risk through these loans.
How Do Credit Scores Affect Your Loan Terms?
There are personal loans available for borrowers who have bad credit scores, but most of these loan programs require borrowers to have good to excellent scores. This is because all lenders look at the loans they make in terms of risk. A secured loan is less risky to a bank or lender. This is because if you default on the loan, the bank can seize and sell the collateral to get their funds back. On the other hand, there is no collateral with a personal loan, and this means that these loans are riskier to a lender. Therefore, banks typically look for borrowers who have good to excellent credit scores because they are less likely to default on their loans.
You should be aware that banks and lenders also price their loans based on risk. Loans that have a higher risk receive a higher interest rate. Therefore, if you have a lower credit score, you can expect a higher interest rate. If you are not happy with the interest rates on personal loans for good credit scores, you can take a few months to improve your credit rating before you apply.
How Much Money Should You Borrow?
All lenders have a maximum loan amount they will extend to borrowers, but the maximum loan amount is not ideal in many situations. The loan amount that you borrow will directly affect your monthly loan payment. Even if a lender approves you for a higher loan amount, you need to carefully review your monthly budget to determine a regular loan payment that is affordable to you. Keep in mind that you can make the payments lower by extending the term. When you extend the term, the interest charges over the life of the loan increase. However, when you absolutely must have a higher loan amount and need to make the payments more affordable, this is a good strategy to pursue.
What Can You Do With the Loan Funds?
When you apply for a secured loan, such as a car loan, you are typically limited by the lender on the use of funds. For example, with a car loan, the funds will be used to pay the purchase price on a new car. With a personal loan, however, you typically are not limited in any way regarding the use of funds. Some people will use their personal loan to consolidate debt, to make improvements to their home, to make additional investments, to take an amazing vacation or to achieve other goals or plans they have in mind.
Because you do not want to take on more debt than what is needed, it is wise to develop a thoughtful plan for the use of loan funds before you apply. Try to scale down your plan so that you can borrow the minimum amount needed. This will help you to avoid getting buried in debt.
How Can You Find a Reputable Lender?
Some lenders that offer personal loans have an unfortunately bad reputation with consumers. For example, they may have a reputation for providing poor customer service, charging late fees without a reasonable grace period when payments are a few days late and more. When you want the best possible experience when applying for your loan and throughout the life of the loan, you need to work with a reputable lender. There is unfortunately not a industry-specific rating system that borrowers can use to rank lenders. Therefore, the best way to find a reputable lender is to read consumer reviews online. Most companies, regardless of the industry, will have at least a couple of negative reviews posted about them from time to time. It is reasonably safe to disregard a few random bad reviews. However, if you read through a dozen or more reviews and notice that many of the reviewers have similar complaints, you may expect this trend to continue when you work with that specific lender as well.
Is a Shorter Term or a Lower Interest Rate More Affordable?
It is wise to pay close attention to the interest charges that you will pay to the lender over the life of the loan. The lender should disclose this information to you up-front before you sign the loan documents, but you can also use an online loan calculator that has an amortization schedule feature on it. This will break down each payment that you will make based on principal and interest charges. When you play with these calculators by making different adjustments to the loan term and interest rate, you will notice that the principal and interest charges adjust. Because these factors fluctuate so substantially, it is not possible to accurately say whether a shorter term or a lower interest is more affordable in all situations. You should use an online calculator to manipulate the numbers in different ways so that you can find the most affordable structure for your specific loan request.
Can You Pay the Loan Off Early?
Some people may set up a loan with a longer term so that they have lower required monthly payments. However, they may be able to make larger loan payments from time to time with the goal in mind to pay the loan off early. For example, you may want to use your IRS tax refund in the spring to pay the loan balance down by a few hundred dollars or more. Some lenders allow you to pay the loan balance off early without hassle or concern. However, some loans are established with a prepayment penalty. This means that the lender will charge you a pre-determined penalty fee if you pay off any amount of the principal ahead of time. If you plan to pay your loan off early, it is wise to look for a loan program that does not have a prepayment penalty associated with it.
How Can a Personal Loan Help You Pay Off Debts?
Perhaps one of the more common ways a personal loan is used is for debt consolidation. However, you may not understand how transferring debt balances from one account to another can help you to pay off debts faster. There are two components to a personal loan that make them more ideal for debt reduction than other accounts you may currently have balances on. First, a personal loan typically has a much lower interest rate than a credit card. In fact, you may be able to reduce the interest rate by half or more. This means that you are paying more principal with each payment. Second, a personal loan has a fixed term, and a credit card has a revolving term. It may take 15 or 20 years or more to pay off debt on a revolving term. However, a personal loan often has a much shorter repayment schedule. At the end of the term, the debt will be eliminated.
Applying for any type of loan or financing is not a decision to make lightly. You should spend time learning more about all possible options available and ensuring that the loan is affordable before you apply. You should also understand all loan terms associated with the program, such as prepayment penalties and the late fee policy. Each program is unique, and you may find that one lender’s personal loan program is much more attractive to you and beneficial for you than another program is. Through your research and understanding, you can make the best decision possible when applying for your personal loan.