Evaluating Personal Loan Companies

Before you make any purchase, it’s smart to learn about the company with which you plan to do business. It’s natural to want to know more about how they do business and if you can expect the extended warranty they offer to be valid when you need it down the road. Evaluating personal loan companies should be no different because the nature of your relationship with the lender will shape your overall satisfaction with your loan for as long as you have it.

Evaluate the company website

No, not every business has the most engaging use of technical effects to keep you searching its website for hours on end. What personal loan companies should have is a website free of typos and grammatical errors. One or two errors isn’t the end of the world, but pages plagued by them may signal a predatory website built in a hurry to capitalize on an economic downturn.

Make sure you scroll all the way to the bottom of the pages. What do you see? Most legitimate companies have a privacy policy, contact information, terms of use and the like. Failure to provide one of these links is not a warning sign in and of itself, but keyword stuffing should send you running. This is when a company identifies the keywords most searched in their industry and repeats them over and over in hopes of gaining search engine traffic. Search engines are onto this practice, but not all webmasters know it doesn’t work yet. If you find this at the bottom of a personal loan company site, continue your lending search with a different company.

Investigate local businesses

Every town has that one location that changes hands every month or so. One day it might be a pizza parlor and the next it’s a payday advance company or drycleaners. It happens. New businesses fail, but you should pay attention to ownership. Is the same person cleaning your clothes one week now joining the ranks of personal loan companies? It could be a personal dream becoming a reality for the owner, but it may signal a business owner looking for something profitable at any cost, regardless of whether he has experience in the industry.

Even established lenders may not have exceptional service records. Although you want a company with staying power, you don’t want to use a lender that employs unfair or unethical business practices. Checking with the Attorney General in your state or the Better Business Bureau can let you know if other consumers have issues with this business. Finding negative information may not influence your decision to use a lender, but it will give you pause for thought before you sign your personal loan agreement.

Above all, remember that evaluating personal loan companies is about more than comparing interest rates and terms. If your research into the company turns up a number of red flags, that low interest rate they offer can prove to be a sour deal.

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Do You Need a Loan?

Not all purchases justify full cash payments. Sometimes you need a loan. In fact, there are times when it’s to your benefit to take out a personal loan to finance your purchase over time. How can you tell when you need a loan and when you should pay cash? The answer is different for everyone, but there are a few questions to ask when deciding.

How much do you need the item?

It’s important to differentiate between real needs and wants when making credit decisions. You don’t need a loan for luxuries or wants. If you need a new transmission for your car to get to work each day, that’s a legitimate need worthy of credit use. On the other hand, purchasing a new outfit and concert tickets is a want and your best bet is to pay with cash instead of advancing your line of credit.

How long will you have the item?

Generally, it makes sense to use credit for durable goods you’ll have for years to come. A new washing machine, new tires and even computer equipment make sense to finance. Just be careful not to let the term of your loan exceed the useful life of the item. For example, computer technology changes rapidly and your new laptop may be obsolete after only a few years. Knowing that, you don’t need a loan term of five years because you’ll be paying for your computer long after you need upgrades or a replacement.

Does the purchase enhance your life?

Unfortunately, the rush you get from speeding down the road in a new sports car isn’t the kind of enhancement to consider. Instead, think of ways to better you life circumstances. Perhaps you need a loan to go back to school to get a higher paying job. Maybe you need a loan to add energy efficient appliances to your home for a lasting decrease in your energy bill.

Will paying cash cause a financial hardship?

As a rule, if you can afford to pay cash for your purchases, you should. It may be tempting to accept the credit card or personal loan offer that arrived in the mail, but you’ll appreciate objects more once you take the time to save up for them. This isn’t always possible. Life happens to everyone. Cars break down. Computers crash. Your savings account may not always cover emergency expenses. When this happens, you need a loan.

By evaluating your needs before making credit purchases, you can ensure you need a loan before making potentially damaging financial decisions.

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Do Banks Give Personal Loans?

Most banks offer many different loan services, including personal loans. Personal loans can range in amounts from less than $1,000 up to any amount the bank allows, commonly $10,000. These loans can be used for anything, but are generally used to pay bills or as a down payment on a larger purchase. Personal loans may or may not require collateral. The smaller the loan, the better chance you have of not having to put up collateral.

Shop around for personal loans at different banks. Banks do charge processing fees and an annual percentage rate in order to cover their cost on the loan and to make money from it. Check all fees at each bank. A borrower may come across a situation where the processing fee is higher at one bank, but the APR is lower. If the APR saves you more over time, it might be worth paying a higher processing fee.

Before signing a personal loan, always read the terms of the loan. The borrower should know the term of the loan, APR, fees and whether there is a prepayment penalty. While a borrower does not intend on making any late payments, this sometimes happens, so it’s a good idea to check what the late payment fee would be. A prepayment penalty is a fee that is charged if the borrower pays off the personal loan before a specified date. If the borrower wants to pay off the loan early, he should compare the amount of interest he would have paid over the full term of the loan and the amount of the prepayment penalty. If the penalty is higher than the interest, pay the loan as agreed until the prepayment date, then pay the loan off in full.

While secured personal loans may be more difficult to qualify for, if you can qualify for a secured loan at a “brand name” bank, you should opt for that rather than a personal loan at a non bank or a payday loan institution. Payday loans and non-banks (such as some internet banks) may offer personal loans that are easier to get, but the borrower may end up paying exorbitant interest rates and other fees. Also, if the lender sells the loan to another company or investor, the monthly payment could change due to changes in fees and the APR.

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Determining Personal Loan Needs

Usually, you know how much you need when you apply for a personal loan because of the loan’s purpose. You determine an auto loan amount based on the cost of a car, or the mortgage by the price of a home. When your needs aren’t as well defined, it can be tricky to know what number to put on your loan application. By taking the time to evaluate the exact nature of your needs, you can ensure you apply for the loan you really need.

Expense Frequency

Knowing you want to apply for a personal loan is only a small piece of your task. Before you can apply, you must define the nature of the expense you need the loan to cover. Is this a single expense or recurring?

If you have a one-time expense, applying for a fixed-rate personal loan may be your best option. On the other hand, a personal line of credit is often the better option when you expect the expenses to occur more than once. Failure to get the right loan product the first time around might lead to multiple loan applications over a relatively short period.

Expense Timeline

Once you understand what type of personal loan is the best fit for your situation, it’s time to consider how much you need to borrow. Sometimes, the easiest way to estimate your total expenses is to plot out a timeline of when you’ll need the money. For example, making improvements to your home often happens in phases. Finding how much you can expect to spend during each phase will tell you how much you need for the total project.

Income Expectations

When you apply for any personal loan, it’s crucial you remember that your lender sets payments based on your current income level. If your loan’s purpose is to start your own business, you must keep in mind that your income may drop while you build up your new customer base. Unless you have savings to supplement your income, consider applying for personal loan amounts that yield a payment you could afford, even if your income dropped by half. This may mean borrowing less money than you originally hoped, but you’ll protect your credit score by doing so. Even when you expect your income to increase, it’s still smart to borrow only what you can afford to repay based on your current earnings.

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Debt Consolidation Personal Loans

Finding yourself in debt is not a position anyone relishes. Debt consolidation personal loans are often the best option to help you get out of debt, but it’s important to avoid the pitfalls of these loans. If you employ three simple strategies when evaluating these personal loans, you save a good bit of stress and potentially save your credit rating.

Strategy 1: Be realistic about your debt

Debt consolidation personal loans do not eliminate your debt. Instead, these loans put it all into a neat little package so you only must view one credit statement each month. In a perfect world, your consolidation loan comes at a lower interest rate than your previous credit accounts.

A mistake some borrowers make is assuming they can breathe easy once they consolidate debt. This is not always the case. Debt consolidation personal loans bring everything together, so if you had difficultly remembering when all the various payments were due, you no longer have that problem. On the other hand, the total amount of debt is no different. Even with a lower monthly payment, you must remain diligent about your repayment efforts to eradicate your debt forever.

Strategy 2: Avoid the easy way out

When you’re in deep debt, you get offers for debt consolidation personal loans frequently. Some of these offers may talk about wiping out your debt for pennies on the dollar. Yes, this is possible, but it is not a consolidation loan. Rather, it’s a debt settlement program.

Debt settlement programs differ from debt consolidation personal loans by the way they deal with your creditors. A consolidation lender makes a loan and disburses the funds to pay off your other credit balances. A settlement program offers your creditors an amount well below your current balance. If they accept, they may report a charge off for a portion of the debt on your credit report. If your goal is restoring good credit, the easy way isn’t always the best way.

Strategy 3: Ignore minimum payments

Debt consolidation personal loans come with set payments for you to make each month. Although you must always pay at least this amount, you are typically free to send in additional money to repay the loan early. Always review your household budget to see if you have extra funds. If so, consider sending it along with your consolidation payment. The only way to truly eliminate your debt is to pay off your consolidation loan.

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Debt Consolidation Loans

Paying off debt is a goal shared by millions of Americans. If you’re thinking of joining their ranks, it’s a goal worthy of pursuit. Unfortunately, not everyone can afford to write a check to cover everything, but debt consolidation loans give you the satisfaction of doing precisely that. Although the sum of your debt remains the same, tracking your payoff progress is easier when everything is in one place. But is debt consolidation your best option or would you be better off attacking each debt in turn? Reviewing the basics will help you decide.

Why to consolidate

People consider debt consolidation loans for a number of reasons, but the motivation remains the same. If your rates are too high, your payments unaffordable or you simply can’t keep up with all the minimum monthly debt payments, a consolidation loan can help you by simplifying your financial life. You must decide which part of the equation is most important to you in the event you cannot have all three.

For example, if you can only obtain an unsecured personal loan to consolidate your debt, the rate may not be much better than your original accounts. What you do gain is a single payment to make each month that is potentially lower than the sum of your current payments. On the other hand, you might find a phenomenal rate, but with a shorter term, that makes your monthly payment higher. Although you pay more each month, you save on your total interest payments and get out of debt years sooner than you would otherwise.

Disadvantages of consolidation

Debt consolidation loans aren’t right for everyone. Unless your consolidation is part of a bankruptcy case, there’s nothing stopping you from running your credit card balances back to your pre-consolidation levels. The difference now is that you have a debt consolidation payment to make each month in addition to your new balances.

You must also consider the type of debt consolidation loan you choose. Using the equity in your home to pay your bills is an option in many states; however, it is not one to take lightly. While you may enjoy tax advantages or flexible payment terms, you’ve used your home as collateral. This means the lender has a legal right to the property should you become unable to repay the loan. Second liens rarely foreclose on property over non-payment, but they can make it difficult to sell or refinance your home.

Deciding to consolidate

Ultimately, only you and your family can decide what’s best for your financial stability. Whether you decide to use debt consolidation loans or tackle each debt on your own, the most important thing is to get out from under those debts and focus on the important things in your life.

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Dangers of Fast Personal Loans

With anything in life, rushing through often brings severe consequences. Obtaining fast personal loans to make a purchase is no different. Even when time is short, you can take certain steps to prevent falling prey to scam artists or unscrupulous business practices.

Why fast loans tempt borrowers

Fast personal loans are attractive to consumers because of the “right now” society in which we live. A lending officer might tempt you into submitting your application with the promise of getting to leave with extra cash in your pocket. A short underwriting turnaround can also mean less time for someone checking your credit to notice the blemishes that usually lead to credit decline.

Why fast loans cause problems

In many cases, the lender offers you a legitimate loan product with an expedited processing period. These loans are fine, but offering fast personal loans is a way for predatory lenders to lure you deeper into debt. Instead of performing your due diligence on the loan’s terms and conditions, the siren’s song of quick cash distracts you from the facts. The lender knows this.

The top sign of a questionable personal loan is a loan officer who’s unwilling to discuss the specific details. Rather than providing appropriate disclosure of terms and fees, he focuses on the speed of approval. When you need money to cover your expenses, the turnaround time is important, but not the only factor in accepting the loan offer.

Another questionable practice is targeting individuals with low credit scores for high interest loans. Yes, loans for bad credit do feature high interest rates to compensate the company for taking additional risk, but the rates and fees are not typically unreasonable in nature. Businesses that employ predatory lending practices for fast personal loans, hope you’ll apply and accept the loan before you investigate the company or the terms. Because individuals with low credit scores have trouble obtaining financing through conventional methods, they may apply out of the sheer relief that they finally received a loan offer. It’s only after months of paying exorbitant interest rates that they realize the mistake.

Avoiding personal loan scams

Always consider the logic behind any credit offer before you accept fast personal loans. If the deal sounds a little too perfect to be real, there’s an excellent chance something else is going on that you don’t see. Protect your finances by investigating every loan offer you receive to determine whether it’s a valid option.

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Consumer Loans to Build Credit

Your credit score is a number that follows you through life and determines your ability to make the large purchases you want. You already know the importance of making this number as high as possible, but you may not know all the strategies to build your credit rating. Using consumer loans in a responsible manner is among the best ways to build and maintain good credit.

Credit Cards

Although credit cards have the reputation for being bad consumer loans, you can use them to build and increase your credit, even when you don’t have enough credit to qualify for other kinds of loans. The key to using credit cards is to use them in moderation. Responsible credit management also means limiting the number of credit cards you apply for at a time.

Start out slow with your credit card usage by charging only fuel for your car. Unless you’re in the midst of a cross-country road trip, this should be an amount you can pay off each month. Once you’ve followed this method for three to six months, use your card for a larger purchase, like schoolbooks, car repairs or to replace an aging household appliance. In this case, you will carry a balance on your card to prove you can manage a debt load, but you should first budget to pay off the total balance within six months.

Unsecured Loans

After you’ve used credit cards to establish your credit, it’s time to move to a different kind of loan. Visit your financial institution and request a small personal loan. The amount need not be large and you don’t need a specific purpose in mind for the funds. The goal of this approach is to show you can repay consumer loans without collateral according to the credit agreement. Make sure you select a term long enough to establish a good payment history for the credit bureaus. You can usually get by with six months, but terms of at least one year are best.

Consumer Loan Tips

Regardless of the type of loan you have, there are a few guidelines to help you maximize the benefit to your credit score.

• Pay your bills on time
• Make more than the minimum payment on credit cards
• Take out only one kind of consumer loan at a time
• Keep credit card balances under 50 percent of your total credit limit

The same consumer loans that lead to bad credit are the loan products that help you build or restore a positive credit rating. Even if you’ve been irresponsible with your credit in the past, it’s never too late to improve your credit score.

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Collateral Loans

If building a solid credit history is your goal, using collateral loans may be your best option. In fact, when you have no credit history or bad credit, the use of secured loans can be the only option lenders make available to you. As long as you follow a few simple guidelines, you can use these personal loans as stepping-stones to your financial goals.

Determine your credit needs

Sometimes, it’s easy to overlook collateral loans as viable borrowing options. When you’re buying a car or a house, this is the first type of loan to cross most people’s minds. If your goal is simply to obtain a line of credit or small personal loan, you may not think of this option.

In most cases, lenders have secured lending options for all the various loans they offer. Because collateral loans often carry lower interest rates than unsecured alternatives, you have the potential to save money by offering your lender something of value in return.

Evaluate your collateral

Although people like to believe their belongings carry significant value, now is the time to view your things with a critical eye. Decide what object of value you wish to use as collateral. Vehicles you own outright, equity in your home and certificates of deposit are standard selections. Artwork, jewelry, investment certificates and rare coins can also secure collateral loans. Keep in mind that your bank may not accept these specialty items as collateral, so you may need to do additional research on where you can go.

Borrow what you need

At any interest rate, the lender makes more money when you borrow higher amounts. Know how much money you need from the transaction before you apply for any collateral loans. If the lender offers you more than you need, turn it down for the sake of your budget.

Of course, there are situations when you have a genuine need for additional funds. In that case, it’s ok to increase your loan amount. Be sure you take time to consider your decision; however, because borrowing too much from collateral loans is a slippery slope. Higher loan amounts mean higher monthly payments. Once you offer something as collateral, you have the potential to lose it if you cannot afford your payments. As long as you won’t overextend yourself, it’s safe to raise your loan amount.

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Certificate Secured Personal Loans

Sometimes, you have the money you need to make a large purchase, but you can’t get to it because it’s locked into a certificate of deposit (CD). When you can’t wait for your CD to mature, certificate secured personal loans are excellent options to use your money without incurring a penalty for early withdrawal. Once you know about the common terms and conditions of this loan, you can determine if this is the way to go or if you should wait until CD maturity to make your purchase.

Common Loan Terms

When you request certificate secured personal loans, it’s important to know how they work. Your lender will place a note in their system that you may not access your CD until you repay the loan. Because you weren’t going to withdrawal the money until maturity anyway, this is little more than an extra precaution that has no bearing on you. The lender sets the term of your loan to coincide with your CD’s maturity and determines how much you can borrow, usually 90 percent of the CD’s total value.

Your bank might offer you two different repayment options. One option requires equal monthly payments comprised on principle and interest. When the CD matures, the money within is yours. The other option allows you to pay only interest each month, deferring repayment of principle until after the CD matures. You pay back your loan balance at maturity and keep the rest of the money for yourself.

CD Secured Loan Advantages

CD secured personal loans often carry a low rate of interest that hovers around 3 percent more than your CD pays. When your credit is on shaky ground, you can use certificate loans to rebuild your score because lenders are more likely to approve the loan when they already have the full amount sitting in the CD as collateral. Although you will end up paying the interest to use money you already have, it is a solid strategy when establishing good credit is of primary concern.

CD Secured Loan Disadvantages

As with any loan, there are distinct disadvantages to certificate secured personal loans. Most lenders will only accept your CD as collateral when you open the CD with their institution. This means that you cannot take advantage of Bank A’s special interest rate offer if your CD is at Bank B, unless you close your CD, take the penalty and open it at Bank A. To combat this problem, consider the lending options of different banks before opening a CD, even if you don’t think you’ll need this kind of loan in the future.
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No Credit Loans

Financial institutions pay much attention to providing loans for individuals with perfect credit and bad credit, but they spend little time discussing lending options for people without established credit. When you first work to build your credit, no credit loans are your best options, as long as they report your good payment history to the major credit bureaus. Make sure you understand why different companies offer no credit loans so you can use their motivation to your advantage.

Student Credit

College campuses have no shortage of booths and advertisements for student credit cards and loans. While many students don’t manage their credit and end up in debt, you can use these no credit loans for students to establish a good credit history. The key to avoiding the student debt trap is applying for only one card and never using it for shopping splurges.

Lenders that offer student credit cards want more than the interest you pay each month on purchases. They want a solid relationship with you as you progress through various life stages. Knowing this, only apply for a credit card with a financial institution that offers loans you need in the future, like auto loans and mortgages. You may also find additional benefits for banking and investing with the same company who issued the card, so make sure you have plenty of local branch offices nearby.

Used Car Lots

Although the major car dealerships require some level of credit history to finance a vehicle, the smaller car lots offer no credit loans on a regular basis. In some cases, your car salesperson is also your lender. Used car lots provide these loans because vehicles are more difficult to finance once they reach a certain age. The cost paid by your dealer for each automobile at auction is often far less than you pay, so the dealer might own each car on the lot outright. This makes every sale they make coupled with the financing charge pure profit.

The dealership can afford to make no credit loans to purchase their cars because they require you make more frequent payments, sometimes every week. Having collateral and steady cash flow lessens their risk and allows them to take a chance on individuals establishing credit. Don’t forget that you can negotiate monthly payments if a weekly schedule doesn’t work well with your current budget.

No credit loans come in multiple forms and allow you to build your credit from scratch. As with any loan product, always read every word of the contract to make sure you get everything promised by the lender.

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