Understanding Personal Loan Options

It’s a common misconception that personal loans with good rates are only available to people with prime credit scores. However, in an era of fierce competition, the market has paved the way for some surprisingly good offers. In fact, you could be one of the many people taking out a small personal loan with no credit check, if you perform due diligence on the lenders offering this.

The Run-Down on Banks as Lending Institutions

When it comes to a personal loan, a bank may be your first thought – given their size and reach. Places such as Capital One, US Bank and Bank of America are well-known for their range of financial services; whether you need an unsecured loan via credit cards, or a mortgage loan for your new property.

The potential problem, however, is that banks often won’t take a second glance at a prospective borrower with a credit score below 660. This, of course, varies a bit, but you should take this as a general guideline of the kind of credit you need in order to qualify.

Benefits of Online Lenders

There are online lenders who specifically target people with bad credit. These consistently go below credit scores of 600 to find a program of payment at the prescribed interest rate that will work for their customer. Oftentimes, the lowered rate is provided as an incentive to consolidate debt – but it can be used for an initial personal loan, too.

There are other benefits to consolidating debt, if that’s the reason you’re in need of a personal loan. The primary one is the new classification of your consolidated debt as a so-called “installment debt,” which actually elevates your credit score. For historical reasons, installment debts are not treated the same way as other types of debt, and so they don’t hurt your FICO score in any way.

How do you obtain an installment debt? The most important thing is your income; then, the amount of debt you actually have. Combining these numbers to obtain your debt-to-income ratio is the money ball, effectively; it is the number that determines whether you’re eligible for the installment debt or not. If you can’t qualify for it on your own, then a cosigner with great credit can help you. The overall benefits are :

  • You are generally eligible for larger loan amounts
  • Your rates tend to be lower
  • Interest savings

No Credit Check Loans

As mentioned above, these are generally online lenders who specialize in loaning money to people who have problems with their credit history. The terms are competitive; but this is of course contingent on you getting a reputable lender. The no credit check option does tend to come with a higher interest rate to cover the risk, but this is often negotiable and represents a breath of fresh air for people who cannot otherwise get a personal loan.
If all else fails and you can’t get an unsecured loan, then you might want to consider going the route of the secured loan. This will require collateral on your part; which can be anything valuable such as a boat, car, family heirloom, house – the higher the loan you want, the more valuable the collateral will have to be. Generally-speaking, however, an unsecured personal loan is the better option. If you pay your current bills on time, you can see a credit score increase in a few months – after which you should try again for an unsecured personal loan at a better interest rate.