10 Things to Remember When Getting a Personal Loan

[Apr 8, 2009.]

 

It seems like everyone is trying to scrape together more money these days. Getting a personal loan is one way a person can improve their cash flow in this tough economy--if they can get one. Here are 10 things to know about getting a personal loan.

1. Lenders have toughened up their underwriting guidelines for making personal loans. In the past it seemed likely practically anyone breathing could get a low-interest signature loan. But lenders are more strict with approving personal loans that don't require collateral.


2. A borrower must have a verifiable income to be approved for a personal loan from a bank. But with so many people at risk of losing their jobs, lenders will be scrutinizing other details of a potential borrower's financial picture.


3. Borrowers must have good credit to receive a loan from a bank, which means over 700 in many cases. People with so-so credit scores will likely be turned down.


4. People who already have an established relationship with a bank have a better chance of being approved for a loan. Having a checking or savings account with no overdrafts, or a mortgage loan with a stable payment history will give lenders an idea of how a potential borrower will handle a new loan.


5. The personal loan form can help borrowers find the best rates and terms on personal loans. It makes it easier to compare loan packages from more than one bank.


6. Banks and credit unions often limit personal loans to $2,500 to $5,000.


7. Having collateral could help a borrower get approved for a loan, but that doesn't mean they'll get a low interest rate.


8. Peer-to-peer lending sites are an alternative to banks. A growing number of people are turning to these sites where they can get loans from strangers or friends and family. Depending upon the site, borrowers will receive a rating based upon their credit score.


9. Credit card cash advances can be used for personal loans, but this may not be the best choice. Not only will there be a fee for a cash advance, but the interest rate will be increased if the monthly payment is late.


10. People with bad credit can turn to payday loans, but in most cases these no credit check loans should be avoided. There is no credit check because payday lenders know that most people seeking money this way have spotty payment histories on other bills. To make up for this, payday loans have extremely high interest rates that can have an annual percentage rate (APR) of 400% and higher.

It won't be easy to get a personal loan in this economic climate. But having good credit, a steady income, and some assets can improve a borrower's chances.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.