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Whether you have good credit or bad credit, personal loans are available to consumers for a variety of reasons. They offer the borrower the opportunity to use funds for just about anything that they may need. Purposes can vary, from paying down or consolidating high-interest credit cards and automobile repairs to medical bills and home improvement projects. Personal loans are available through qualified lenders such as banks, credit unions, and loan centers. Though you will typically pay less interest on a personal loan than a credit card, the interest rate you receive (your APR) will likely rely on such factors as your credit score, steady employment and income.
Personal loans are just that—a fixed sum of money that individuals can borrow from a lender for personal reasons. The loans are given at a fixed rate of interest and repaid in installments over a fixed period of time. The type of personal loan can either be unsecured or secured, with the former usually requiring very good credit and the latter requiring some form of collateral. But there is more to it than that.
Unsecured Personal Loans
Unsecured personal loans do not require any collateral from the lender. Instead, the borrower will undergo scrutiny by the lender. The credit rating, income stability, and the credit-to-debt ratio of the borrower will be thoroughly evaluated before an unsecured loan will be granted. Getting this type of personal loan with a low credit score, part-time employment, or bad credit can be difficult or exceptionally expensive in the way of high-interest rates and possibly fees.
Secured Personal Loans
Secured personal loans are a preferable option for borrowers with poor credit. However, secured loans do require a form of collateral to back your personal loan. The collateral can be your car’s registration or car title or title to any motor vehicle or it could be a mortgage—anything of value. These are known as title loans or registration loans. Secured personal loans are designed to reduce risk to the lender by using the borrower’s collateral as an incentive to pay the loan back in full at the agreed-upon terms.
One prime benefit of personal loans is that you the borrower can use your loan however you want. They are, in general, highly accessible, flexible, and used for incredibly diverse applications. Though personal loans can be used for just about any purpose, one should not apply for a personal loan without a specific purpose in mind. All borrowers should have a repayment strategy in place, too, before taking out a loan. Though you may be going through a period of financial stress, it’s important to consider that taking out an unnecessary loan will only increase that financial stress in your life, not decrease it.
Bad Credit Personal Loans
That said, applying for a personal loan is available to anyone, even those with bad credit, if they can meet the terms of the lender. In many ways, if used responsibly, a personal loan can help improve the credit of a borrower who has had a difficult stretch with finances. When wisely used to repair your credit, such as getting current on payments or consolidating loans, a personal loan with bad credit can be beneficial. The downside is until your credit is repaired, typically the loan will be given with higher interest rates, and it may even be subject to additional fees than those loan recipients with good credit.
Once your credit has fallen, it will take time and effort to improve. The two most important things to do are to repair your payment history by catching up on and then paying your bills on time and reducing your debt to increase your credit utilization ratio. In other words, the lower percentage of credit used will increase the amount of credit available to you, which will increase your credit rating.
One of the best ways to take out a personal loan with bad credit is to work on improving your credit history. Use that money to get current on your bills and lower your credit utilization ratio by paying down a credit card. Personal loans are a valuable tool, but like any tool, its value is in knowing what it’s used for and how to use it wisely. If you’re in the market for a personal loan My Tio Rico may be able to help!
