The Types of Personal Loans
How do you get an unsecured or secured loan?
You’re dreaming of that trip to Europe or trying to reduce your debt. Whatever your financial goals, a personal loan can help you out. Before you head out and start applying for a loan, there are a few things you need to take into consideration – like what type of personal loan will suit your requirements.
The types of personal loans
Choosing a personal loan from the multiple options available requires research to secure the best deal. Lender fees and interest rates vary; you'll also want to know the terms of each loan you're considering and compare your options. When you’re researching the various types of loans, you’ll come across the following:
• Secured loans
Secured loans have collateral attached to it, so if you default on your repayments, the collateral can be used to recover the debt for the lender. Home and car loans are good examples. If you’re trying to build a credit score, then this is a wonderful way to start. They also generally have lower interest rates.
• Unsecured loans
As suggested by the name, it’s the very opposite of secured loans and does not require any collateral such as your home or car. Interest rates are usually higher for unsecured loans due to the additional risk to lenders.
• Short term loans
It’s the last week before pay day and you’re in need of some emergency cash for transport to work or any other emergency that may arise. Many lenders offer short term loans (also known as the pay day loan), that is usually paid into your account within 12 hours after applying. These loans are unsecured, and carry high interest rates and fees.
Now that you’ve figured out the various loans available to you, it’s time to get your application ready.
What you need to apply for a personal loan
• Credit score
Lenders usually grant loans to those with a favourable credit scores. Not sure what your score is? You can request a report for free at various web sites.
It’s important that you monitor your credit rating before you apply for a loan.
What is considered a positive score?
Between 640 and 700 might get you a loan, although most banks will not accept a score below 700. However, expect to pay higher interest rates with these creditors. If your credit score is below 640, do not expect to qualify for an unsecured loan from any lender.
To improve your score, start paying off whatever debt you have, and make sure to pay all your bills on time.
• Use an established lender
Find a reputable, established lender that offers flexible repayment rates and lower interest rates than their competitors. Yes Loans handles plenty of personal loans. We also have flexible repayments for up to seven years, subject to all terms and conditions.
Once you’re in contact with your chosen lender, they’ll provide details of what documents are needed. The basics include:
• Proof of payment
• Identity verification
• Proof of address
Repaying your personal loan
Loans are usually repaid monthly, with a balloon repayment (residual payment) left over for the final instalment. Discuss your repayment options with your lender and make sure you understand the conditions and criteria that govern how your loan must be repaid.
Your lender will usually provide an amortising loan – whereby you pay a fixed monthly amount, which includes your interest rates. You will pay off this loan monthly until the balance is zero. Whether it’s a secured or unsecured loan, always make sure to pay your premiums on time to avoid any penalties.