In financial language, a loan is the sum of money that either an individual, a group of people, or a financial organization lends money to an individual group of people or an organization to be returned with interest. The loans do not require checking of your credit history. That is why you can get first-time personal loans no credit history from the banking institution you are a member of.
A personal loan is a loan given to someone for emergency use. As I said earlier, the lender believes that you will return the money as agreed. It can be secured or unsecured, and the amount given depends on the borrower’s ability to repay. If you are a member of a particular bank, it is easy to get a loan so long as you have a good credit score.
There are different categories of personal loans depending on the intended purpose. You can borrow a personal loan to pay school fees, pay medical bills, use it for transport, or purchase household goods such as food and utensils. The loans are generally small and are limited to specific amounts. Personal loans from a credit union depend on your periodic contributions to the association. You must also be their member.
Which are Different Types of Personal Loans?
There are different types of personal loans that exist in the financial market. Their classification is as a result of their intended use. The type of loan you take depends on what you want to do with it. The major types of personal loans include the following.
- Secured personal loans
- Fixed-rate loans
- Variable-rate loans
- Debt consolidation loans
- Unsecured personal loans
- Co-sign loans
- A personal line of credit
i) Secured loans
Secured loans require you to have collateral that will act as security. It can be either a house in case of mortgage loans or a car in case you need a car loan. In an event that you are unable to pay, the lending company can seize the item you used as security to recover back their money.
There is no way you can get away with the loan. After all, you have to sign an agreement with your lender more so if you are borrowing from a bank. If you evade, then you enter in bad credit books. It becomes difficult for you to take any other loan from any other institution.
ii) Unsecured personal loans
Unsecured personal loans require no collateral. You can borrow freely so long as you have a good credit history with your bank or lender. Personal loan with no income verification is the best for people who do not own valuable things to use as collaterals. However, the lender is at higher risk if you fail to pay.
To succeed in getting an unsecured loan, you must have a credit score of 5% to 36%, more so if you are getting it from financial institutions such as banks. You have to repay the loan within 1-7 years. If you are wondering how to get a loan with no job, then you can try looking for unsecured personal loans from any financial institution near you.
iii) Fixed-rate loans
Fixed-rate loans mean that you get the credit and pay in installments. Every month you have to pay specific amounts of money called installments. Most personal loans take this form. The good thing with personal loans is that they do not change within the period of the loan life. You pay the same throughout the loan period.
The good thing with fixed-rate loans is that you can budget adequately since the loan interest does not change.
iv) Variable-rate loans
Variable-rate loans changes with time. Financial institutions set benchmarks of the loans, and the interest may vary with time, depending on financial situations. It means that your interest may rise or fall.
v) Debt consolidation loans
Debt consolidation loans are kind of loans whereby if you have many loans with a banking institution, the loans can be put together and become one loan. Such merging makes the payment convenient, and also helps to reduce the payment burden.
vi) Co-sign loans
Co-sign loans involve someone with very little or no credit history. The lender does not know you and thus cannot predict your payment capability. You are then required to get a cosigner to promise your lender that if you fail to pay the loan, then he or she will take responsibility and pay on your behalf.
To succeed first in getting a co-signed loan, you have to get someone with a very strong credit history. Getting a cosigner with personal loans credit score under 500 can make you miss a loan you need so much that you enter into big trouble.
vii) A personal line of credit
A personal line of credit is essential when you want to borrow for ongoing expenditures, such as with credit cards. You can only pay interest on the money you borrow. Using the line of credit given to you, you can send money to someone using a checking account and pay later. To send money with credit cards, you must know how to transfer money using routing number and account number effectively.
The banking institution gives you a credit card whereby the amount you have to pay the money you spend each month. To be precise, with personal line of credit, you get a line of credit to borrow on an as-needed basis.
Other types of loans include Payday loans, credit card cash in advance and Pawnshop shop loan. A pawn shop loan is like secured loans, although it charges a lot of interest. For you to get a Pawnshop loan, you have to present items such as a bicycle, radio, or a computer. As soon as you return your loan, you get your item.
Where Can I Get a Personal Loan?
There are different sources of personal loans. However, the primary sources of personal loans include banks, credit unions, and online lending companies. Individual people can give you a loan as long as they know you well. Personal loans from banks and credit unions mostly require you to have an account with them.
Apart from that, you need to have a good credit score with the financial institutions. You can also get a loan from a relative or friend and pay them later. Loans from relatives may attract a very little interest, and the payment may be flexible depending on who loaned you.
Which bank Can Give Me a Personal Loan?
Although there are numerous banks in the country, most of them do not give loans easily. Some exceptional banks for personal loans include;
You can get a loan from them within 1-2 days. The interest rates of the banks range from 10.5% to 18%. The banks offer online lending services.
What is a Credit Score?
A Credit score refers to points that help to show your ability to repay a loan depending on the previous pattern of loan repayment. The typical credit score used by banks is the FICO score that was developed by the Fair Isaac Corporation. Scores range from 300-850. Scores below 500 are horrible, and you may find it challenging to get a loan.
A score above 600 is good as it can help you secure a loan without any difficulty. People with credit scores above 700 are said to have excellent credit scores and are likely to acquire large amounts of loans as long as they have genuine security.
The following diagram shows the structure of FICO scores.
|Credit Score||Percentage of People||Rating|
|300 – 579||16 %||Very poor|
|580 – 669||17%||Fair|
|670 – 739||21%||Good|
|740 – 799||25%||Very good|
What Factors Affect Credit Score?
Various factors contribute to your credit score. They include the following.
- Your total debt
- Payment history for loans and credit cards
- Your credit utilization rate
- Public records such as a bankruptcy among others
- Type, number and age of your credit accounts
- The number of new credit accounts recently opened
- The number of inquiries for your credit report
It is important to note that the credit score does not consider things such as race, employment, age, salary, or where you live. However, if you have bad credit, you can as well improve it by observing several important factors.
First, start paying your bills on time. Late payment of bills can lower your credit score due to failure to follow the agreement between you and the billing company. Secondly, you can check on your credit utilization ratio and keep it below 30%. If your credit utilization is very high, you should consider reducing it to low levels.
Another way you can also improve your credit score by opening a secured account. You then deposit a certain amount in that account as security, then borrow a certain amount of money. Again, you can ask for your friend or relative to allow you to use their credit score, act as a cosigner, or allow you to open a joint account with them.
Personal loans are useful when you are in extreme financial difficulties. You should always maintain a good credit record so that it can always be easy for you to get a loan. Moreover, you should always consider lending institutions that offer less interest on borrowed money.
If you have close relatives who are financially stable, you can borrow from them instead of going to the bank. Always borrow when you are in dire need of money to avoid entering yourself into unnecessary debts.