It’s true that banks and mainstream lenders’ main intent when offering personal loans is to earn money. The more they earn in interest, the better for their business. In any case, personal loans may be expensive but they can be useful financial tools when used properly. You don’t deliberately seek these products but you resort to such forms of funding when the situations call for it. Just remember to keep the following things in mind when scouting for the best personal loans in the market.
Secured vs. Unsecured
Personal loans are available in two forms – secured and unsecured. The difference lies with the former requiring an asset or property as collateral while the latter does not need any security.
Because secured personal loans are attached to a security, loans are generally higher and repayment terms longer. Risks are lower for lenders so it follows that interest rates are also lower. Unsecured options, on one hand, force lenders to take higher risks. They compensate that with higher interest rates and lower loan amounts. When you default on unsecured personal loans, there are no properties or assets that the lenders may seize as opposed to secured personal loans.
In general, personal loans in the UK are available from as low as £100 up to £50,000 or more depending on the type of loan and your capabilities to pay.
Credit Rating Dependent
When borrowing from banks, personal loans are usually dependent on your credit rating. A good credit score means processing may be faster and involves hassles. Bad credit history, on one hand, is generally responded with outright rejection. To remedy the problem and bridge the gap in the financial lending market, there are now lenders you can turn to for personal loan options designed for people with bad credit.
Most personal loans advertised as “bad credit” loans are usually unsecured and come with excessive interest rates. Approval may be easier and quicker but borrowers shoulder the burden of high interest because of bad credit history.
Varying Interest Rates
With personal loans, there is no fixed interest rate for everyone. It varies from deal to deal and the type of loans you are applying for. But the most important factor that affects your interest rate is your credit score. This is when having a good credit rating comes handy because the better your score, the lower the interest rate will be.
People with bad credit obviously aren’t able to take advantage of this aspect of personal loans. The fact that you have history of defaults, arrears or maybe bankruptcy is often a telling sign for lenders that you are a high risk borrower. Charging you with excessive interest rate is your lender’s way of ensuring that they’ll not lose money when they approve you loan application.
When Applying for a Personal Loan
If you’re in the market for a personal loan, start applying from a bank you already have an account with. Processing will be faster this way since you already have your records in their system. If you have good credit, chances are high that approval is guaranteed. Having bad credit history, on one hand, may be a hindrance but not exactly a rejection. Your bank may consider your circumstance especially if you’ve been banking with them for years.