Where to find a personal loan

[Oct 8, 2010.]

 

Borrowing money to get through tough times isn't as easy as it seems. If you believe that getting a personal loan can help your financial situation, here is what you need to know about finding a source of credit.

• Some banks offer unsecured personal loans. Instead of putting up collateral to get a loan, you are required to guarantee you'll pay it back with your signature. Unsecured personal loans are not easy to get in this economy. You'll need a strong credit score and a stable source of income to be seriously considered for this type of loan.
• Line of credit. Some lenders offer a line of credit to creditworthy customers. When you open a line of credit you receive checks and a debit card that can be used to access the funds. One good thing about a line of credit is that you don't have to actually borrow the full amount that has been authorized for your use. Also, if you pay off the balance owed, you can continue to reuse that credit as long as the credit line is active.
• Debt consolidation loans are intended to help consumers consolidate credit. While a debt consolidation loan can allow you to lower your interest rate and your monthly payments, make sure you investigate any company offering these loans before signing up. Some companies that claim they can help people consolidate debt charge high fees. In some cases, disreputable consolidation firms have left consumers worse off.
• Payday loan stores charge extremely high interest rates. These quick loans are easy to get as long as you have a job. Basically you give the lender a signed paycheck or bank account number that is used to pay back the short-term loan when you get paid in a couple of weeks. If you can't repay the loan, it gets rolled over into another loan and interest is tacked on. Using payday loans can keep you chained to a cycle of debt since annual percentage rates (APRs) can soar well above 300 percent.
• Loans from retirement accounts. Taking out a 401(k) loan isn't as cumbersome a process as going to a bank. However, you should avoid tapping retirement funds because among other drawbacks you lose out on any earnings that would accumulate if you didn't touch those funds. Borrowing from a retirement account should be considered only in a serious emergency.

Compare choices for loans

Take the time to determine if borrowing money is really the right option for your situation. You may find that altering your spending habits and getting more disciplined about managing money may actually be a better choice to improve your finances than getting a personal loan.

 

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.