There’s no doubt that applying for personal loans online is convenient and simple. It’s also great that most lenders offering personal loans online provide a response in one business day or less.
Even so, it pays to have an idea of how the loan’s terms and conditions are usually structured. Here are some facts that will help you understand how lenders go about making their decisions and what that means for you.
Lenders May Have Different Requirements That Applicants Must Meet
There are many requirements that applicants must meet no matter which lender they’ve approached. Things like verification of income, evidence of a personal address, and documents to confirm the identity of the applicant are considered standard. Along with these, lenders may ask for more information based on the nature of the loan and your current credit score.
Even if you’re working with a lender who places more emphasis on how you’re doing financially today and less on events that happened a few years ago, you may be asked to provide some details about those unfortunate comments on your credit reports. Assuming you are forthcoming and it’s obvious those same issues no longer exist, there’s a good chance the lender will approve the application.
Personal Loans Are Usually Unsecured
Unsecured loans are simply loans without a collateral requirement. You do not have to pledge any type of asset that the lender could seize if you defaulted on the loan. While it’s possible that there may be a lender out there who offers personal loans that are secured, finding one will be almost impossible.
That means you should proceed on the assumption that any lender you consider does offer unsecured personal loans. Typically, the information that the lender provides on the front end will clearly state if secured personal loans are available.
The Rate is Typically Fixed Rather Than Variable
There are other types of loans on the market that come with what’s known as a floating or variable rate of interest. This usually means that the loan will come with a fixed rate for a specified period of time. After that, the rate will fluctuate based on what’s happening in the market. Mortgages are sometimes structured as variable rate loans.
You’re not likely to find a personal loan that comes with a variable rate. For the duration of the loan period, you’ll have the same fixed rate in place. This is actually a good thing, since you never have to guess what the interest rate will be six months or a year from now. In terms of budgeting the loan payments, having a fixed rate is quite helpful.
The Repayment Schedule is Also Fixed
Some other types of loans offer balloon payment options or other approaches that include some flexibility in when payments may be remitted. You’re not likely to find that with any offer for a personal loan. Instead, there is a fixed schedule with due dates for each of the payments. You’re expected to remit those payments on time in order to avoid incurring late fees and other penalties.
Not All Lenders Report to the Credit Bureaus
This is a major point that you want to settle before accepting any loan offer. Personal loans provide an opportunity to increase your credit score over time. That can only happen if the lender reports regularly to at least one of the major credit bureaus.
Remember that not all lenders report activity to the bureaus. Some may report but on a sporadic basis. What you hope to find is a lender who reports regularly to the bureaus. Regularly could be monthly, bi-monthly, or quarterly. The point is that regular updates to your credit reports provide positive information that helps to offset the negative comments from a few years ago. If your lender does report on a regular basis, your score could be quite a bit higher by the time the loan is paid in full.
Would a personal loan help you deal with a pending financial need? If so, now is the time to begin looking for the right lender. Make sure you understand how the lender works and what sort of responsibility you are assuming by accepting the loan offer. In the best case scenario, the outcome will be beneficial for you and for the lender.
