Whether your air conditioner goes out in the dead heat of summer, or you have a blowout on the way to work, personal loans can be your best way to finance the repairs necessary to fix your situation. Most people are unsure of how to apply for personal loans, and think they must ask a friend or family member for cash. However, loans between friends and relatives are rarely a good idea, as they can seriously strain your relationships.
When it comes to personal loans, trusting to a neutral third-party institution is the best way to go. The lender can objectively assess your situation and make the loan with a reasonable amount of interest and a clearly defined payback period. There are three main types of lenders: banks or credit unions, payday lenders, and peer-to-peer lenders. Depending upon several factors, such as your credit history and FICO score, the amount of money you need, and your income, chances are you can secure a loan from one of these three lenders:
Banks and Credit Unions
Banks and credit unions are the most common and obvious of lenders. Depending on your history with the bank and your credit score, you may be able to get a personal loan. Some banking institutions even run “sales” on certain types of personal loans, such as vacation loans as summer nears. Generally speaking, a personal line of credit is unsecured, making it prone to a high interest rate.
Payday lenders offer quick cash, and you pay the balance of the loan back on payday, the idea being that you are borrowing against your own paycheck. Generally payday lenders do not run a credit check but they will verify the details of your employment with your supervisor, such as how long you have been employed and how much you earn. Usually payday lenders charge a flat fee per loan, such as $15 for a $100 loan, but then interest rates kick in if you miss a payment.
Peer-to-peer lending is a new breed of personal lending, connecting people directly rather than going through a third-party institution such as a bank. There are several different models of this kind of personal loan, but the general idea is that the borrower goes to the P2P lending website and makes a request for a loan. The lender (or a pool of investors) can decide to grant the loan based primarily on the borrower’s credit history. Although there is the potential for fraud in this model of lending, it remains popular because it cuts out the middle man and allows people to connect on a one-to-one basis.