Much like with anything else that’s financial in nature, borrowing money works out the best when you’ve planned just how to do it. Here are a few questions to reflect upon before taking out any kind of loan: Do you really need that loan, and what is it for? What kind of loan are you getting? How are you paying it back? It seems to me that many people take on loans without really thinking hard about the consequences, and that’s when they get into financial trouble.
For the sake of discussion, let’s go over the various ways you can get an unsecured personal loan. The thing is, the better your credit, the lower your personal loan rates are going to be. Your loans will be cheaper if you are considered a prime borrower or someone with good credit. That’s something a lot of people seem to forget.
Where and How To Get A Personal Loan
1. A Peer To Peer Lending Network
I’ve been surprised that not more people have taken a look at peer to peer lending (or social lending) as a way to get a loan. Then again, it could be that it’s just tougher to qualify as a borrower at a place like Lending Club, which has the following requirements for borrowers who want to join their lending network:
- You have to be a U.S. resident.
- You need a FICO score of at least 660.
- Your debt to income ration (minus your mortgage) should be under 25%.
If you manage to make it in the network, you could potentially get better rates here than through many other sources, and the debt management process also promises to be easier to deal with.
Pros: Good rates
Cons: Need good credit, strict requirements for borrowers
2. Credit Cards
I think that the most common way to get quick cash is through a credit card. But it’s just too easy and too convenient to use the plastic. It’s easy to forget that when you whip out your card, you’re really entering into a loan agreement with a merchant. That’s your cash you’re using, plus extra (tag on the interest rate). If you can’t trust yourself with credit cards, then it’s best to toss them away.
Pros: Easy money (easiest loan to get?)
Cons: Easy money leading into a debt cycle
For those interested in a debt consolidation strategy that uses credit cards, you can review this list of top balance transfer credit cards with no annual fees (unless specified). One or more of these cards may be suitable for your needs.
3. Your Bank, Credit Union or Other Financial Institution
Then there’s your trusty bank. If you’ve got a good relationship with your banker, then it may be worth exploring the possibility of getting some liquidity through them. Here are a few things to decide upon when you go this route: should you go fixed rate or variable rate (I’d go fixed!)? What are the loan fees? Are there ways to lower your interest rate (by offering collateral for instance)? There’s more work involved when you go through your bank, since you’ll have paperwork to do and due diligence done on your credit history, income and whatever else, before you’re able to secure your loan.
Pros: A relationship with your bank can get you good personal loan rates
Cons: Tougher requirements for getting loans
4. Your Family and Friends
If you’ve got strong relationships with family and friends, they of course, may be able to help you out financially. But such financial arrangements, in my mind, are fraught with issues: I’ve seen many relationships go sour because of money, so much so that I caution anyone who’s considering lending to family or friends to treat such agreements formally, as you would any business deal or contract. Do that or just consider the loan a gift, so that if your borrower decides to pay you back, you can be pleasantly surprised and think of it as an unexpected windfall.
Pros: Great loan terms from people you know
Cons: Can be a risk to your relationship
5. Payday Lenders?
What about those lenders that promise you fast cash even if you have bad or no credit? Places like these will offer you easy, same day loans with no credit checks. Well of course there’s a catch — a huge one! They’re the most expensive loans you’ll ever come across, with stratospheric rates that can border on usury. But that’s the price you’ll pay for convenience and possibly for having problems with your credit standing — it’s simply much harder to get access to credit when you’re a credit risk. Watch out for predatory lenders but if you’re still bent on getting quick cash, do it with your eyes wide open.
Pros: Quick cash, easy money, no credit check required
Cons: Very expensive terms, exorbitant interest rates, possible predatory conditions involved
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