Main Advantages and Disadvantages of High-Risk Loans – Our Guide

If you want to make a large purchase, such as a house or a car, chances are that you’ll seek a loan to cover the costs. If you have a few blemishes in your credit history, though, finding a lender to give you a loan can be challenging.

The good news is that even if you made a few credit mistakes in the past, there is still hope to secure a loan and attain your dream purchase. You would be considered a high-risk borrower and may therefore be eligible for high-risk personal loans.

Keep reading to learn more about high-risk personal loans, including whether or not you might be eligible for this type of loan and how you can secure one to finance your dreams!

What are High-Risk Loans?

It’s important to understand what a high-risk loan entails before beginning the process of pursuing one.

In short, a high-risk loan is a loan offered to those with a less than stellar credit history. High-risk loans are typically subprime loans, meaning that they are loans offered at a rate above prime to borrowers with low credit ratings. You may also see them called bad credit loans.

Typically, what indicates to lenders that you’re a high-risk borrower is a low credit score, because a low credit score suggests that:

  • You have a history of paying your bills late
  • You keep your credit card balance high and close to your limit
  • You have taken out a lot of credit or made requests for multiple loans in the past

One thing to know about a high-risk loan is that it’s an unsecured loan, which is where the risk lies for high-risk lenders. Unlike a secured loan, such as a mortgage which requires you to put your house up as collateral, high-risk loans don’t require you to put up any of your possessions if you fail to pay the loan back. So, the lender has no legal claim to your assets in the event of default and depends solely on your financial capacity to and trust that you will pay the loan back.

With so much risk for borrowers with a history of bad credit habits, you might be asking yourself: what’s in it for high-risk lenders? The answer is interest.

The way that a lender justifies giving a high-risk borrower a loan is by charging a high interest rate. The idea is that if you do end up not repaying the loan, the interest can cover some, if not all, of the lender’s loss. What’s more, borrowers may feel more incentivized to pay their loans back quickly to prevent high interest rates from engulfing their pockets.

Why Take Out a High-Risk Loans

Why Take Out a High-Risk Loan?

With such high interest rates, high-risk loans may seem like an unattractive option, but there are many situations where the borrower might benefit from a high-risk loan if they can pay back the full amount promptly.

Pay Off Your Other Debt

If you have multiple loans or credit cards with high interest, it may make sense to consolidate your debts.

Debt consolidation involves obtaining a new loan to pay off a series of smaller loans. You essentially use this new, larger loan to pay off several smaller ones, combining your debt into one and requiring you to make only one monthly payment.

There are several reasons to consolidate your debt:

  • Simplifying your debt repayment. You no longer have to remember several due dates, meaning that you let fewer payments slip through the cracks.
  • Reducing the interest rate. If you have high-interest debt, such as credit card debt, taking out another loan with even a slightly lower interest rate to pay off this debt may end up saving you time and money in the long run.
  • Paying off your debt faster. If you end up with a lower interest rate than you had while keeping the same payment amount and schedule, chances are that you’ll end up paying your debt off a lot faster.

It’s important to note that a high-risk loan might not be the best way to consolidate your debt. The interest rate of a high-risk loan may end up being higher than the interest rates for your other loans, which doesn’t benefit you in the long run.

Increase Credit Score

One of the best reasons to say yes to a high-risk loan is to start rebuilding your credit.

Taking out another loan to increase your credit score may sound counterintuitive, and your score may indeed take an initial hit once approved for your high-interest loan. However, a new loan allows you to show that you’re capable of paying down your debt on time.

If you continue to pay off your high-risk loan on time every month, you will demonstrate consistency and see your credit score increase. Better yet, try to pay more than the minimum amount to pay down your loan quicker and prove that your past money mistakes don’t define you today.

Now that you know how high-risk loans may benefit you, you need to determine if you’re eligible for one.

What You Need for High-Risk Loans

Applying for a high-risk loan is as simple as applying for a credit card or any other type of loan. You can do it by contacting any conventional lender, such as your local bank or credit union. In some instances, you can even complete an online application. You need your personal information and some additional documents.

However, considering the stakes of high-risk loans, lenders sometimes require many steps and several components to be included in your application. If you have a bad credit score, the application process can be more complicated.

Here’s what you typically need to qualify for a high-risk loan.

Credit Score

The most important aspect of determining your eligibility for a high-risk loan is your credit score.

Sure, lenders already assume that you have a low credit score if you’re applying for a high-risk loan, but just like any other loan, exactly how low that score is determines how much you can qualify for, if at all.

Some high-risk lenders do have cut-off points when it comes to credit scores. For example, if your credit score is below 500, you generally have a lot more trouble securing a loan, even a high-risk loan.

Even if you do qualify for a high-risk loan with a credit score below 500, the loan may most likely be a small amount with an extremely high-interest rate that might not even be worth it in the long run.

Be sure to look at your credit score and review your credit report before applying for a high-risk loan to understand where you stand. Any high-risk lender will do their own credit check before approving the loan, but you should still gather your own information to determine if you have poor credit.

Proof of Income

No matter what type of loan you take out, lenders want to know that you can pay back the loan and have evidence of how you’ll be paying it back, which is why you need to provide proof of income.

Proof of income is a key part of your high-risk personal loan application. It proves to lenders that you have an adequate income to pay back the installment loan consistently and on time. Whether you’re employed full-time with a stable income or receive some other type of payments (i.e., pension), you need to prove that you have money coming in.

Along with proving that you have sufficient funds to cover paying back the loan, proof of income also gives lenders an idea of your debt-to-income ratio, which is the percentage of your income that will go towards paying down your debt. You can calculate your debt-to-income ratio by adding up how much you pay in monthly debts and dividing it by your income before taxes or gross monthly income. What you’re left with is a percentage, your debt-to-income ratio.

The ideal debt-to-income ratio for lenders typically hovers around 30%. However, for high-risk borrowers who may typically have a higher debt to income ratio, a lender may offer a little bit of leeway in terms of the acceptable percentage.

If your income alone isn’t enough to get you approved for a high-risk loan, consider asking someone to be your cosigner. In the eyes of the lender, a cosigner is someone who would approve all risks if you fail to pay your loan, meaning that they become responsible for your payments. For best results, your cosigner should be someone who has a stable income and a good credit score to compensate for your high-risk profile.

Affordability

Just because you’re approved for a loan doesn’t mean that you can afford to pay it back. These circumstances could be why you ended up in need of a high-risk loan in the first place!

It’s important to determine whether or not you’ll be able to keep up the payments when paying back your high-risk loans. To best prepare, pay special attention to the interest rate you agree to and estimate how much your monthly payments will be.

Speak to an Expert

Since every loan you apply for triggers a hard inquiry into your credit – which can negatively impact your credit – do all of your research before jumping into an application.

Start by looking at your local banks and credit unions to determine where you may find the best rate, then compare rates and find out each institution’s requirements for high-risk loan applications. It’s a good idea to contact them or another financial expert to discuss your options.

When you’re ready to apply, be sure to gather all of the relevant information for your application to make the process go smoother. This information may include:

  • Credit report (although this is usually pulled by the lender, it’s still a good idea to have it on hand).
  • Proof of income (paystubs, W-4 forms, letter of employment).
  • A cosigner, if applicable.

Pros and Cons of High-Risk Loans

Pros and Cons of High-Risk Loans

As mentioned, high-risk loans have their advantages to obtaining funds and improving your credit. The benefits of high-risk loans include:

  • Accessing a loan while carrying a low credit score.
  • Obtaining a personal loan to purchase something now instead of waiting.
  • Consolidating your debt for simpler payments.
  • Increasing your credit score with a new lender willing to give you a chance.

That said, there are still a few drawbacks to pursuing a high-risk loan, such as:

  • Obtaining additional debt.
  • The responsibility of having to pay back the loan on time.
  • Higher interest rates.
  • The potential necessity of a cosigner.

When determining whether a high-risk loan is the best option for you, consider each of these pros and cons to determine if you can keep up with payments or if this type of loan really will benefit you in the long run.

High-Risk Loans – Final Thoughts

High-risk loans can open up opportunities for those who have made financial mistakes in the past and just need a second chance.

Applying for a high-risk personal loan through a traditional lender can be as simple as applying for a credit card, but make sure you can handle a loan with such a high interest rate, especially if you’ve made poor financial decisions in the past and have a less-than-stellar credit rating.

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What is a Consumer Loan and How Do They Work?

What is a Consumer Loan

Most adults will need a number of consumer loans throughout their lifetimes, even those who are considered wealthy. Few people have enough cash on hand to buy cars or homes outright; most of us need to work with a financial institution or lenders in order to pay for big purchases.

Consumer loans are a massive part of the financial industry in the U.S., and when managed properly they enable us to provide for our families—a loan may quite literally “put a roof over your head.” It can be a huge relief to see some money hit your checking account in a time of need.

However, consumers should proceed with caution! Loans can also be extremely tricky to manage, especially for those with little financial know-how or budgeting skills.

This is why it is important for borrowers to have a general understanding of how consumer loans work before they apply for loans and make agreements with lenders. In this article, we will walk you through the four main types of consumer loans and how they work.

Auto Loans

Whether you are searching for a used car on a modest budget or seeking a flashy sports car after a big promotion at work, auto loans are needed by most consumers to purchase cars.

The loan term for an auto loan is one of the most important things to understand, and it relates directly to the value of a car. While a home’s value will in most cases increase over time, an automobile’s value will generally decline over time.

This starts the minute you drive off the dealer’s lot. That’s why car loans have shorter loan rates.  The lender needs to know the car will be enough to cover their losses if you default on your loan.

These terms usually last anywhere from 24 to 84 months, and it is best for borrowers to bring a down payment to the table whenever possible to cut down on that loan term.

Unfortunately, some consumers will find themselves “upside-down” in a car loan, meaning they still owe more in loan payments than the car is worth. (This is often due to these loans’ fixed interest rate,  jacking up the price of your monthly payment.)

Taking the shortest repayment plan is advisable when it comes to car loans, and it is also worth trying to wait it out until you can save a considerable down payment. If public transportation is an option that could buy you six more months of savings, it could pay off for you in the long run with a much better auto loan.

Mortgage Loans

A mortgage loan is another way to purchase a big-ticket item–in this case a house–without having to fork over hundreds of thousands of dollars (or in some cases millions) to the seller.

Few people would ever be able to purchase a home without a mortgage, and they certainly would not be able to buy the “home of their dreams.” Mortgages allow us to pay for our homes over time, though of course, they come with some limits.

If you are making $15 an hour as a barista, no lender is going to willingly enter into a $750,000 mortgage with you.

Luckily there are mortgage programs designed to assist with home purchases for those in lower-income brackets. The main types of mortgages are:

Conventional Mortgages: These work well for consumers who are able to make a significant down payment on a home (preferably 20%).

FHA Loans: These are backed by the Federal Housing Administration and target low-income home buyers.

VA Loans: These are offered by the Department of Veterans Affairs to assist veterans in purchasing homes.

Most mortgages work as 30-year fixed-rate loans, meaning the consumer pays in monthly installments over the course of 30 years. Some 15 or 20-year mortgages do exist, but these are less common as the monthly payments are much higher and not feasible for as many borrowers.

People and Dog Sitting on Floor

While your monthly payment remains the same, what differs over time is how it is divided between interest (how the lender makes money) and principal (the original debt).

This process is called amortization, and at the beginning of your loan more of your payment will go toward interest and this will decrease over time.

Personal Loans

While home and auto loans are used widely, there are a variety of other reasons we may need funding. This is where personal loans come into the picture.

A personal loan can help a consumer pay for anything from financing a vacation to medical expenses to debt consolidation. Personal loans vary widely in terms of maximum loan amounts, interest rates, and the length of the loan.

Personal loans can be taken from most financial institutions, or common payday loan centers. The process is often as simple as filling out a consumer loan application to submit to a loan officer for approval.

Generally speaking, most lenders will cap a personal loan at $100,000, and again the limits will be specific to the borrower and their consumer credit report history and income. Personal loans are often helpful when life throws unexpected expenses our way, such as a sudden illness, a layoff, a divorce, or other challenging circumstances.

Student Loans

The cost of higher education can be crippling for many families; very few can afford to pay for four years of college outright, without some form of financial aid, scholarships, or student loans.

Federal student loan programs offer a fixed rate and the government pays the interest on the loan while the student is still enrolled in school. There are subsidized federal loans, which go to those students with the direst need, and there are also unsubsidized loans that can be used by students without stipulations on need.

A student may borrow up to $23,000 in unsubsidized federal loans (and up to $31,000 including subsidized), with the assurance that every borrower receives the same interest rate.

While these are popular programs, these amounts do not add up to enough funding for many students, with tuition costs constantly rising at colleges and universities across the country.

Private lenders also work with students who need a credit line for their education, and the interest rates will be dependent on that borrower’s financial situation.

Man in Library

A Final Tip on Consumer Loans

No matter what type of consumer loan you are seeking, be sure you read the fine print carefully and familiarize yourself with all penalties and fees before signing the dotted line.

Loans can be lifesavers, but they can also wreak havoc on your credit score if you enter into one that you cannot repay.

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How Long Does It Take to Get a Loan? Our Simple Guide

How Long Does It Take for a Loan

When it comes to needing a personal loan, most people need them quickly. If you are facing an unexpected expense that you cannot cover with savings, you need access to funds without delays caused by a tedious loan application process or an unnecessarily long review period from the lender.

There are many different kinds of loans that take time. It’s not often possible to secure a student loan (even a private student loan) or business loan in a short period of time.

However, when it comes to a private loan or personal loan, these can be wrapped up in a matter of days, if not the same day. For borrowers with good credit, the loan approval process will likely take less time than for those who have less than stellar credit scores. Still, even applicants with credit issues can move through the loan process quickly.

Any of us can find ourselves in need of a loan when life throws unexpected curveballs our way. We may need a short-term loan to cover medical bills, a car loan to purchase a new car, or to keep a household afloat after a layoff.

Loans can be secured quickly and managed easily if you understand the basics involved, and we will walk you through that process here.

Waiting for Cash Credited to Bank

Two Ways to Get Your Loan

As we review the ins and outs of the loan application process, we will look at the timing associated with two different types of lenders: online lenders and banks/credit unions.

There are some general assumptions related to the way each of these categories works, though it is still advised to ask each specific lender for their timeline before you get started.

Working With Online Lenders for Personal Loans

One popular option for loans is the use of an online lender. Most of us are accustomed to managing so many aspects of our lives through online platforms, whether that means taking college courses, filing our taxes, or designing a plan for a backyard patio.

Online lenders are a convenient resource for those pressed for time, as you can apply for loan funds any time of night or day. The ability to “shop” the lenders online is also helpful, as you can search for consumer reviews and read up on what other people have experienced using a particular lender.

Laptop Beside Hour Glass

The timing will vary from lender to lender, but the basic time frame you can expect is as follows:

Application: The online lender application will take just seconds or minutes to complete for a preapproval. Essentially you are offering your social security number and income for a preliminary rate quote.

Many consumers are cautious about sharing a social security number and other personal details online, and rightfully so. This is why you should take some time to research and verify any personal loan lenders, making sure their site is secure, before sharing any details,

Time Between Application and Approval: If you get a preliminary rate quote from an online lender and wish to move forward, it will take another three to five days for final approval.

Lenders will be taking a closer look at your financial history to determine if they want to assume the risk of offering you a loan. This will involve a detailed look at your credit score and history as well as any other information submitted with your application.

Time Between Approval and Funding: Go ahead and bank on a few more business days before the fund hits your bank. This could be impacted by bank holidays as well, so be sure to confirm with both the lender and your bank.

It would be ill-advised to write the rent check or pay off any debts until you see that the funds have definitely hit your account.

From the time you apply with an online vendor, you could have funding within a few days at best, or it could be up to 10 days or more as you work out the loan term on your funds.

Working with Banks or Credit Unions for Personal Loans

While the convenience of online lenders is a big draw for some borrowers, there is also a significant benefit when it comes to taking the traditional route with banks and credit unions. Nothing compares to in-person customer service.

Building with Glass Windows

By working with a bank or credit union, you can go in and speak directly to a loan officer about your specific needs. This is a great opportunity to review all of the “fine print” associated with loans, and you will have an opportunity to ask for clarification on the loan type, interest, fees, penalties, repayment term, and more.

Best of all, if you use a bank or credit union where you already have a checking account or savings account, you may be able to negotiate better rates. It is also convenient to keep your loan account tied to your checkings and savings, for ease of having things in one central place.

When you log on to your bank’s mobile app, you will have a quick snapshot of your financial situation.

The timing associated with a personal loan from a bank or credit union will typically play out as follows:

Application: The loan application may be filled out in the bank or ahead of time online; check with them first to ensure you have all the right documentation if you are going to fill it out in person.

Time Between Application and Approval: With banks and credit unions it is possible you can get approved on the same day or within one business day. This will depend on their staff available to check all of the information in your application.

Time Between Approval and Funding: If you are already a customer of the bank or credit union and your loan application is accepted, there is a very good chance the funding will be in your account on the same day. In some cases, it may take 1-2 more days.

Final Thoughts on the Time It Takes to Get a Loan

The online lending process is convenient and a good option for those who can wait a week or more for funding. For personal loans with more urgency attached, it is a better idea to apply with a bank or credit union.

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Four Tips to Help You Manage Long Term Personal Loans

Manage Long Term Personal Loans

A personal loan can provide tremendous relief when facing burdens such as unexpected medical expenses, a job loss, a divorce, or any number of circumstances. If your loan application is successful, you may find yourself finally able to exhale after a long period of stress and worry.

Whether it’s a short term loan, unsecured loan, installment loan, business loan, or any other kind of loan, getting this kind of financial help can be a huge relief.

However, that “exhale” should also be a turning point, one where you immediately begin to put a plan in place to pay the loan back. The management of a personal loan requires commitment from the borrower, and no one else is going to do this work for you.

Unfortunately, those who fail to properly manage personal loans, especially a long term personal loan, end up facing negative consequences.

A bad credit score, an inability to secure additional loans, and possibly the loss of assets as you figure out a plan for repayment can be difficult to handle.

The last thing you want as a result of a personal loan is an even worse financial situation. We have the tips you need to successfully manage a long term personal loan and regain your financial footing once and for all.

Start with a Budget

Many people find themselves in financial distress because they do not have a budget. This is the easiest way to get into credit card debt or other financial woes is to spend more than you make.

It’s important to keep tabs on the money coming in and out of your bank account, especially if you’re also managing student loans, credit cards, or other forms of loan repayment.

Sit down and write out all of your expenses, including an estimate for those you do not know offhand. Your rent, car payments, student loan payments, credit card payments, and utilities should be easy enough to pull from previous bills, and you can use a placeholder amount for food, activities, and entertainment.

Track those items to the penny over the next month, keeping up with what you spend on those categories. You may be shocked to realize your smoothie habit is draining an extra $100 out of your bank account.

This is where you trim the fat to create the funds to cover your long term loan. This can help you make a plan to hit every monthly payment, and build your way back to excellent credit.

Budgeting does not come easy for everyone, and fortunately, there are loads of helpful apps to choose from to keep you on track. Starting a household budget is one of the best things you can do not only to pay back your personal loan but also to stay in better financial shape going forward.

Person Holding with Samsung Galaxy Tab

Pay More Than You Can…On Time

Paying on time, each and every time is the name of the game when it comes to loans if you do not want to damage your credit score. This is why a budget is incredibly important, so you do not find yourself short of money when the bills are due because you overspent.

In an ideal scenario, you will also try to pay extra on the loan whenever possible. Paying early and paying extra will bring you significant benefits, such as

– A shorter loan repayment term overall (meaning less interest paid over time)
– The financial freedom to use that money in other ways once you have paid your debt
– An improved credit score and credit history if lenders report you always paid on time

Paying early is in many cases one of the best things you can do, but we must flag one very important warning here. Some lenders have a penalty for paying off a loan before it is due, and this is the “fine print” you need to review carefully before entering into any loan agreement.

Dane County Credit Union never charges an early pay-off fee, but if your loan is with another lender check out your loan term before you make a repayment plan. It is possible in these scenarios that your hard work to pay extra is completely negated by penalty fees like prepayment penalty. This is where you need to know your loan, inside and out, so you can make the best decisions about when to pay it off in your repayment period.

Even if paying “extra” is problematic, rest assured paying “on time” is never a bad thing. That is something you should live by as a rule set in stone.

Woman Using Drawing Pad

Consolidate

If you are managing multiple loans, a new loan option can come in the form of consolidating them. For many borrowers there comes a point where it seems impossible to pay back all of the debts, and they fail to make the minimum payment on any single loan.

A higher interest rate can catch you off guard, which is why looking at a loan’s annual percentage rate is so important. Debt consolidation offers a way for you to combine the loans into one monthly bill, paying them off at a potentially lower interest rate, or even a fixed rate.

The good news for many borrowers is that it is possible to lock in an interest rate in debt consolidation that is lower than the average interest rate on your loans. The “bad news” is that you will lose out on a longer repayment term, and have a shorter amount of time to pay back the debt.

If you can revisit your budget and continue to trim some fat to pay the monthly debt consolidation bill, you may find this is the best possible solution for you to get your financial house back in order.

Monitor Your Credit Score

Some consumers only worry about their credit scores when it is time to take out a new loan, perhaps when purchasing their first home or car.  But you should be monitoring this score regularly to ensure that your efforts to pay down your debts are reflected in your score.

By making on-time payments on your personal loans, you should see a positive impact on your credit score. If you miss payments, you can be sure the credit score will go down. A steady and consistently good score is what you want to position yourself for the best possible loans in the future, if and when they are needed.

Dollars

Personal Loans: Final Thoughts

Managing personal loans requires organization, dedication, and commitment. If you can establish and stick to a budget, it will help you not only pay off the loan but also be in a position to better manage your finances going forward.

Enter into any personal loan agreement with a clear head and a clear plan for paying it back, and be sure you have combed through all of the fine print first to avoid getting hit with fees and penalties you may have missed.

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Loans for Low Income in Madison – Personal Loans for a Tight Budget

Madison Wisconsin City

Those with low incomes are often the people who need loans the most, but they find them the hardest to get. Lenders will assess borrowers in several ways, including their annual income and debt-to-income ratio (DTI).

Borrowers without much disposable income, such as those with low-income families, are deemed the highest risks. Lenders know that offering a loan to a low-income borrower means there is a chance the borrower will not be able to make their monthly loan payment during their loan term.

Securing a low-income loan may be challenging, but they are not entirely impossible. Here we will walk you through what you need to know in order to secure a personal loan and also offer some tips for what steps you can take if your personal loan application is rejected.

Loans for Low Income in Madison

What Do Lenders Consider a Low Income?

There is no one set figure that classifies a borrower as “low income,” and the figures may vary from lender to lender.

However, you can always look at your state’s area median income as a guide, and consider whether your current income has you falling above or below that number.

According to the U.S. Census Bureau, the median household income for the United States is $62,843. If your median household income is $30,000, you can be fairly certain a borrower would classify you as “low income.”

This does not mean an automatic rejection when it comes to your loan application, but it does mean you are facing an uphill battle in the process.

The good news is there are some participating lenders who will work with borrowers who have incomes as low as $20,000. This means it’s entirely possible to secure a low-income home loan, repair loan, or other forms of financial relief.

Before you approach a potential financial institution for your loan options, you will need to do some prep work to ensure your application is accepted.

Copper-colored Coin Lot

How to Get a Personal Loan if You Have a Low Income

Because you will never know until you try, now is the time to apply for a personal loan. Even with a low income, you can and should still apply for a loan if you really need the funds and have no other savings or ways to manage your expenses. Here are the steps you should take when you are ready to move forward:

1. Shop Til You Drop!

In this case, we mean shop around for the best loan—we certainly do not mean you should add more debt. Check out the rates available from different financial institutions for their offered loan program.

Be sure you also investigate their fees and read consumer reviews. You may want to find a program that has benefits such as loan forgiveness, payment assistance, and other perks that will make your monthly payment easier.

2. Apply

Once you have found the best possible options, follow the personal loan application process and submit your information so the lender can assess you as a potential borrower.

You will need to provide pay stubs as well as some other financial documentation. Be sure you submit every item the lender requests in the application; missing documents could slow down the application process.

3. Sign

If your personal loan application is accepted you will need to sign a loan agreement, but you should only do this after reviewing the fine print carefully. If you are a first-time borrower or at all unsure about the loan, ask a trusted family member or friend with financial expertise to review the agreement with you before you sign.

Black Smartphone Photo

I Am Unemployed: Can I Get a Personal Loan?

The answer to this question is yes, with some specific conditions. Being unemployed does not mean you will automatically be rejected in a personal loan application; however, you will need to show the lender you have some type of income, be it a pension, government benefits, or some other form of funding that would ultimately enable you to meet the financial requirements of your loan and make your monthly payments.

Additionally, self-employed people face a challenge with lenders who would typically ask for pay stubs in the loan application process. In this case, a self-employed individual may be able to satisfy the application requirements with copies of bank statements or tax returns instead of the usual pay stubs.

What Can I Do If My Application is Rejected?

It can be extremely discouraging to face rejection in the loan application process, but borrowers should not give up altogether. There are some proactive steps you can take to improve your chances of being accepted the next time.

Work on Your Credit Score

You can always obtain a copy of your credit report at annualcreditreport.com, and any borrower should know where she stands in terms of credit score before applying for a personal loan.

You can improve your score by making on-time payments for any accounts you have already opened, paying down high balances, and making sure you have the right mix of credit.

It may seem counterintuitive to open a new credit account to help your score, but in some cases, this actually works to reverse bad credit (as long as you make your payments on time, every time).

Find a Loan Cosigner

If you have a family member or friend in better financial standing who would be willing to cosign your loan, this could increase your chances of acceptance. It could also lower the interest rate attached to the loan.

Seek Other Resources for Financial Help

If your loan application is rejected and you are in a dire situation with expenses you cannot cover (especially in cases where you may be facing unexpected medical bills), look into charitable financial aid organizations in your area that may be able to provide short-term assistance.

Alternatives to Personal Loans

Finally, there are also some alternatives you can try, such as payday loans or title loans (if you have a lien-free title to an automobile), but these should be last-ditch efforts as they have incredibly high-interest rates.

Credit unions often provide better interest rates to borrowers than other banks, and seeking a personal loan from a credit union, even with a low income, could be the best place for you to start.

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What Is a Good APR on a Personal Loan?

What Is a Good APR on a Personal Loan

The process of taking out a personal loan can be overwhelming for many people. From worrying about whether your loan application will be approved to combing through the fine print and understanding loan terminology, the experience can be a daunting one.

Personal loans can be attached to some exciting and joyous periods in our lives (when we are seeking a loan for a wedding or a car loan for a new ride), or they can be linked to incredibly difficult times (when we need a cash advance to help with sudden and unexpected medical expenses, for example).

Whatever the reason that prompts you to apply for a loan, a basic understanding of how personal loans work can ease your mind in the process and help prepare you to choose the best possible loan for your circumstances.

That choice could be dictated by the loan with the best APR, which leads us to the question: “What is a good APR on a personal loan?” In order to answer that, we will start with a basic understanding of how APR works.

APR: What Is It and How Does it Work?

APR stands for “annual percentage rate,” referring to the interest rate and fees charged in conjunction with a loan, whether it is a cash loan or a loan of goods or assets (like an automobile). Most consumer loans use an APR rate, which does not compound interest.

Lenders are required to disclose APR to borrowers. This was a significant 20th-century initiative with the Truth in Lending Act in 1968, which was created to protect consumers.

Today’s loans are much more transparent than in the past; however, this does not mean some consumers are still unclear on how APR works or sign on to loans without researching all of the possibilities for securing a good interest rate.

APR can be calculated with these steps:

  • Add the total interest paid over the life of the loan with any loan fees
  • Divide that number by the amount of the loan
  • Then divide that number by the term of the loan expressed in the number of days
  • Multiply that number by 365 to generate an annual rate
  • Finally, multiply that number by 100 to turn it into a percentage

What is the Average APR on Personal Loans?

The major credit bureaus report 9.41% as the average interest rate on an APR loan rate on personal loans, with your credit score being the main driver in terms of how the lender calculates your percentage.

Consumers with a solid credit history can expect an APR of 15% or less, but those with a poor or nonexistent credit history could be faced with an APR as high as 60% or more.

Basically, the higher the risk you are as a borrower, the higher your APR will be on a personal loan. To ensure you are getting good credit card apr, be sure to keep the average credit card apr in mind and compare rates among lenders.

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Factors That Affect Your APR

There are many factors that lenders place a heavy focus on when determining your APR. Your credit history, for example, is of great importance.

All lenders will look at your credit report to determine if you have good credit or bad credit. You may want to look into this yourself before looking to secure a loan, in case you need to take steps to improve your score.

There are also several other important factors you should be aware of before submitting a loan application.

Annual Income

Before a lender will agree to offer you a loan or establish the APR, they will want to review your income. In addition to assessing you by your credit score, the lender will consider whether your income will enable you to pay back the loan. You will need to provide proof of income with pay stubs or other documentation required by the lender.

Debt to Income Ratio

Even if your income is relatively high, it may be offset negatively in the lender’s assessment by a high amount of debt. Your debt-to-income ratio (DTI) is another way to predict your ability to repay a loan.

This figure is calculated by taking all of the debt payments you make each month (such as your mortgage loan, credit card debt, student loan, and auto loan payments) and then dividing the total of those bills by your gross monthly income.

A higher DTI will be a red flag for a lender—indicating you are already close to maxed out on debt and it is likely you would struggle to make the payments every billing cycle. A lower DTI is a promising sign for a lender, and in turn, it would help you secure a lower interest rate.

Loan Cosigner

If your credit and income history do not make you the best candidate for a personal loan, you may be able to improve your odds by adding a cosigner.

This may be a family member with better credit who is willing to sign on to the loan with you, and their willingness to assume responsibility for the debt could result in a lender lowering APR.

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How To Compare Personal Loans: Good APR and More

Before you sign on the dotted line, you should be sure you have compared loan options to find the one that works best for you.

The best APR you can get is indeed a priority, but there are also other factors you should compare. Use this checklist when assessing the personal loans before making your final decision:

APR: If your credit history is good, then a good APR will be under 20%, and excellent credit will be under 10%.

Loan Term: Go for the shortest term you can afford, which will lower your APR.

Monthly Payments: Be sure the monthly payment is an amount you can afford while keeping up with all of your other financial obligations.

Fees: This is where the fine print is incredibly important. Be sure you understand every fee that is attached to the loan, including things like penalties for an early payoff, any interest charge, or an annual fee. Ask the lender to review every fee in detail before you agree.

Discounts: Wherever possible, try to take advantage of discounts that could be available from lenders. For example, you might be eligible for better rates by using a bank or credit union where you already have a checking or savings account.

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How to Get a Car Loan with No Credit History – All the Information You Need

Get a Car Loan

Job seekers, who face one rejection after another because they lack experience are often left to wonder in frustration, “How can I gain any experience if no one gives me a shot?”

There is a similar frustration for young adults when it comes to credit. How can one establish a credit history, proving they will pay back their debts, if no one will give them a loan in the first place?

Many people stress over whether they have good credit or bad credit, but it becomes even more stressful when you don’t have credit at all. When it comes to lenders, a nonexistent credit history lumps a borrower in a similar category as those with bad credit, which seems unfair but it is a reality. If lenders cannot see evidence that you have a track record of paying your debts, they see you as a risk.

For young adults who need to purchase a car, either to commute to college or work or both, this can be particularly frustrating. A car loan may seem impossible to secure without an established credit history.

While it is difficult it is not entirely possible, and we will walk you through what you need to know about getting a car loan with no credit.

Option 1: Finance through Your Bank or Credit Union

Since most young adults have a checking and/or savings account, even if they have not yet opened lines of credit, you can go to your bank and ask if you can prequalify for a car loan, which in turn will dictate your budget when you go car shopping.

Credit unions often offer financing options with lower interest rates, so if you can qualify for membership in one, this can be a great place to start. In addition to banks and credit unions, you can also investigate online lenders.

A word of caution when it comes to any online lender is to research thoroughly and look at customer reviews. Beware of giving out your personal and financial details too quickly, before verifying the lender is credible and reliable as you pursue auto financing options.

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Option 2: Finance through the Dealership

In some cases, buyers will finance a car loan directly through the dealership. This may seem like the easiest car financing option to buy a car, by choosing your vehicle and working out a financial arrangement all in one place, but it does not come without a cost.

The dealer is essentially the “middleman” between you and a lender. Even though fast loan approval feels nice, they will often give you a higher interest rate on top of what would already be attached to the loan. A lower interest rate is what you should be looking for, so pay close attention to financing terms when going through a dealership!

Option 3: Attach a Co-Signer to Option 1 or 2

Whether you finance through a bank, credit union, or auto dealer, you may be able to secure a much better interest rate if you bring on a cosigner.

This would be someone else with an established and perfect credit history (or at least, a good credit score) who would also be responsible if the debt was not repaid.

The lender would be more likely to extend the loan in this case, since someone with a positive credit rating is now invested in the ultimate repayment of the loan.

These three options may help you secure a car loan with no credit if you absolutely need to move forward with one before establishing credit. A fourth option we want to point out is that you could simply wait.

Should I Wait?

Waiting may not be the answer for everyone, but it is worth considering. If there is any way to utilize public transportation, carpools, etc. to get to your work and school, it may serve you well to try and establish credit before seeking a car loan. Here are some ideas for what you can do to be proactive during this waiting period:

Save Every Extra Penny

If you can put aside some money long enough to save up a substantial down payment, this could have a huge benefit when it comes to purchasing your car. You may be able to negotiate a much better deal overall, and you would not need to take as long to pay off your loan.

Apply for a Secured Credit Card.

You can start to build a credit history with a secured card (one that you pay a deposit to open).

Hone Your Negotiation Skills

While your limited credit history may mean you are stuck with higher interest rates on auto loans, you could at least find ways to lower the overall purchase price. Negotiating for a lower purchase price should always be a priority among new (and used) car buyers.

The Six-Month Mark and Credit Scores

Once you have opened a line of credit, such as a secured credit card, it will take approximately six months to establish a credit history. This is when you should start to check your credit score, and you should continue to monitor it as you prepare to try for an auto loan.

FICO scores are broken out into five categories, outlined below. You will not jump right to the excellent tier after six months, but over time you can get yourself into the top two tiers with on-time payments and a good mix of credit accounts.

Car Loans with No Credit History

300-579: Very Poor

Borrowers in this range have a bad credit score and are typically rejected by lenders. If they are approved, they will likely be required to pay some type of initial fee or upfront deposit to secure a loan.

580-669: Fair

Borrowers who fall into this category may also be referred to as “subprime borrowers.”

670-739: Good

In this range, borrowers are more likely to be approved for loans, but not always at the best rates.

740-799: Very Good

This category finds borrowers receiving much better interest rates on loans.

800-850: Exceptional

This is the ideal scenario for a borrower, and a lender, too, who has great assurance the money will be paid back.

Car Loans with No Credit History: Final Thoughts

It will not be easy to get a car loan with no credit history, so wait and establish a credit history first if you can.

If this is out of the question, be sure you fully understand the terms of the loan before you sign, knowing that interest rates and other penalties will be high. You must have a solid plan in place to repay that car loan so it does not damage your credit history as soon as it starts.

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Keys to Successful Personal Financial Management

Many people find the topic of financial management to be completely overwhelming but don’t allow yourself to get discouraged and disheartened.

No matter what your personal financial situation looks like today, one of the best ways to successfully manage your money is to adopt a continuous and proactive commitment to improvement. Continue reading Keys to Successful Personal Financial Management

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What is the Best Credit Score – Can You Reach ‘Perfect’?

Your credit report and score affect your life in a number of ways. For starters, your credit score affects your ability to acquire a loan, rent an apartment, and sometimes, even qualify for a job.

A credit report shows your bill payment history, current debts, and other financial information. Companies and lenders use this credit report to calculate your credit score.

VantageScore and FICO are the two main credit scoring models. In each model, the credit score ranges are 300 for the lowest and 850 for the highest. Is it possible to earn a perfect credit score? Continue reading What is the Best Credit Score – Can You Reach ‘Perfect’?

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