It is often believed that you can’t have the best of both worlds when securing a loan. Getting versatile credit with fixed installment repayments on the one hand and not risking the loss of collateral on the other sounds almost like an impossible dream!

How about making this dream come true with your next personal loan application? Through personal loans, you can easily escape your final emergencies without the additional baggage of recurring installments and soaring high interest rates. The good news is they’re also available for your bad credit scores. 

In this informative blog, we explain what is a personal loan and how to secure one that’s reasonably affordable for your credit needs.   

 

How Do Personal Loans Work?

A personal loan works in the same way as other loans. However, the terms and conditions may differ depending on the lending institution you approach. As a debtor, you must go through the several available options and compare essential factors like interest rate, maximum loan amount, and maturity period before settling for one. 

When you’ve finalized your lender, you must apply for the personal loan by clarifying your details, credit history, and lending needs in your application. Generally, you can secure a loan between $50 and $50,000. 

However, consider applying for a higher amount, as sometimes lenders deduct an origination fee, which is 10-12% of the principal amount, to reduce the effective loan you receive. 

Upon submission, your loan application will undergo a thorough review and verification process. Once it’s over, the loan amount will be disbursed into your account within 24 hours of approval so you can use it for its intended purpose immediately. 

Over time, the loan principal can be paid off in fixed installments, along with pre-determined interest amounts at rates ranging between 6% and 36%. You can choose a paying-off period of up to 7 years. However, since the interest is incurred monthly, you should choose a shorter maturity span to avoid additional expenses. 

 

Common Features of Personal Loans

A huge struggle of getting a personal loan is deciding which one best suits your needs. Consider these factors to enhance your search. 

Fixed Interest Rates

A personal loan is granted at a fixed interest rate, which is determined according to the debtor’s past credit history, monthly income, and debt-to-income ratio. Once the loan is secured, this rate remains unchanged. So, it’s better to secure a low interest personal loan at the application stage itself. 

Flexible Loan Terms

The lender usually offers a loan term from 2 to 7 years, but the final choice is yours! Choosing a shorter term would mean paying a higher interest rate and installment every month, but you can escape this hustle quickly. 

On the other hand, a longer loan term may offer a low interest personal loan, but the effective loan amount you pay is significantly higher than what you had secured in the first place. Make your decision wisely! 

Monthly Repayments 

Most lenders offer monthly installment options, meaning you must pay a fixed share of the original principal and interest every thirty days. The first repayment period usually begins after 30 days of securing a loan. 

You can opt for a lower amount and a longer term to lower your monthly repayment share by significant limits. 

No Collateral Required

Most lenders provide unsecured personal loans, meaning you need not submit a collateral to guarantee your loan repayment. This implies that none of your valuables risk seizure if you fail to repay. 

However, unsecured loans may restrict the loan amount you can apply for and push your interest rates higher. You can opt for secured personal loans that fall within your budget to avoid such circumstances. 

 

Common Uses of Personal Loans

The lenders do not have the right to restrict the usability of a personal loan once it has been disbursed. You can spend it for any legal purpose. Here are a few suggested ways: 

Debt Consolidation

If you have accumulated several debts and are fed up with paying their separate installments, consolidate them into one and use your loan to repay them with single monthly installments. However, the interest rate may be high owing to an existing hefty debt-to-income ratio. 

Education Expenses

Higher education expenses are specifically high these days. However, this must not stop you from pursuing your dream college or schooling. Get a personal loan, and you’re good to go! Unlike education loans, you can use these to fund academic expenses that may go beyond tuition fees, accommodation charges, and study materials. 

Medical Expenses

Medical emergencies occur suddenly and unexpectedly. You may not always have cash at your disposal to deal with them. Under such circumstances, a personal loan is your road to the rescue! It is approved and disbursed within a day. 

Plus, unsecured personal loans eliminate the paperwork and hassle of submitting collateral, saving you time and valuables. 

Home Improvement

Home improvements and renovations can be costly, and you may run out of budget sometimes. There is no need to stop ongoing work, though. You can use your loan to pay off the additional amount and enjoy living in the house of your dreams! 

It is a better option than home equity loans as you do not risk losing your house if you fail to repay. 

Emergency Expenses

Your loan can be used for other emergency expenses like financing a funeral, replacing a personal vehicle that suddenly broke down, or rebuilding the loss of your valuables destroyed in a natural disaster or accident. 

These situations leave you financially vulnerable, and quick cash at your disposal can save the day.  

 

How to Qualify for a Personal Loan?

To qualify for personal loan, you must go through a few financial checks by the lender. These will help the lender gain trust in your repayment capability and enhance the chances of your personal loan application getting approved instantly. 

Check Your Credit Score

First up, the lender checks your credit score. A higher credit score would imply that you have promptly paid back your past credit and have never defaulted on any previous loan amounts. A good credit score, probably higher than 650, allows the lender to lower your interest rate and grant a higher amount without hesitation. 

Maintain a Stable Income

The lender ensures that you have a stable income source, as that will establish the means by which you will repay what you’ve borrowed. Your monthly income should be enough to afford the monthly installments of your loan. 

The acceptable types of income for the purpose include salaried income, freelance earnings, income from social security, alimony, child support, rental income, and more. 

Lower Your Debt-to-Income Ratio

The debt-to-income ratio determines the share of your current income that’s diverted to paying off your existing debts. If this ratio is higher, the lender may assume you don’t have the room to pay for an additional loan and refuse your application. Consider lowering the debt-to-income ratio before applying for a new personal loan. 

 

How to Apply for a Personal Loan?

Personal loans are applied to the lender through a detailed application process. Debtors need to identify and approach their lender, discuss the loan terms and fill out the application for loan request. For those unfamiliar with the process, there are clear steps to follow when applying for a personal loan. Once approved, the funds are instantly transferred to the borrower’s bank account. 

Check Your Eligibility

To check your eligibility to get a personal loan, visit the lender’s website or talk to a representative to understand the nuances of loan terms and conditions. Also, you need to check your credit score and debt-to-income ratio, as these are crucial factors for getting your application approved. 

Calculate Monthly Installments 

Once you’re sure of your applicability, check your affordability. Calculate your monthly repayment cost using the loan amount, interest rate, and duration of the loan. Ensure it lies within your monthly income budget. If not, try to increase your loan term or reduce your loan amount to bring the total APR within your financial limits. 

Fill Out the Personal Loan Application 

Lastly, fill out your loan application with accurate personal details, financial information, and source of income. You also need to clarify your loan needs in the application, and complete it with a few supporting documents to back your identity and financial claims. These include income or employment proof, recent bank statements, latest salary slips, and government-approved identity and address proofs. 

Wait for the Lender’s Approval

Upon receiving the application, your lender will thoroughly investigate its details. If all is found to be correct, you may get an approval typically within 24 hours. However, it may take longer if your application was submitted just before the holidays. 

Nevertheless, once the application is approved, the amount is directly transferred to your bank account. 

 

Alternatives to Personal Loans

Personal loans let you have quick cash at your disposal during emergencies without restrictions on their usage. Akin to these, here are several other options you can explore, just in case they are not readily available or you can’t find one that suits your needs. 

Credit cards

You can borrow and spend money against your credit card for any purpose. Interest-free repayment is usually due in 30 days. If you miss it or pay an amount lower than you borrowed, the credit card company will charge you interest.  

Payday loans 

As the name suggests, a payday loan is paid off from the following month’s income. The due date is 28 to 30 days after the loan is granted. Payday loans offer a small amount, usually up to $500, and charge high interest rates, between 10% and 15% of the principal amount. 

Borrowing from family/friends

Borrowing from family and friends is a safe and convenient alternative to a personal loan. You can receive the loan with zero interest and mutually decide on the loan term. Moreover, no paperwork hassle or risk of collateral loss saves both your time and money.

 

Bottom Line

With a personal loan, you can secure quick credit during financial emergencies and high-expense scenarios. The catch is to approach the right lender, especially the ones offering low interest personal loans, unsecured, to save your valuable collateral from loss. 

For a smooth and hassle-free approval process, fill out your loan application with accurate information and attach all the necessary documents prescribed by the lender. At Radcred, we help you get personal loans worth $50,000 with interest rates as low as 5%, regardless of your credit score.   

 

FAQs

What is a personal loan, and how does it work?

A personal loan is a type of loan you can get from authorized lending institutions for an amount of up to $50,000. To apply for it, choose an appropriate lender based on their loan term, interest rates, and approval time. Once you’ve finalized the lender, fill out your loan application. You’ll receive the amount within a day from when the lender approves your loan request. 

Is a personal loan good or bad?

A personal loan is one of the best choices for financing emergencies, unprecedented medical expenses, home improvement projects, education costs, and loan consolidation. You can get quick cash without the burden of recurring installment repayments, high interest rates, or collateral submission. 

Do personal loans damage your credit?

Personal loans can slightly plunge your credit score temporarily. However, if you repay the loan on time with due diligence, your credit score will significantly boost in the long term. 

Can anyone get a personal loan?

To receive a personal loan, you must seek approval from the lending institution where you’ve filed your application. The approval depends on your credit score, credit report, income source, monthly income, and debt-to-income ratio. 

Are personal loans better than credit cards?

Yes, in some aspects, personal loans are better than credit cards. For instance, personal loans let you borrow much more than any credit card company can offer instantly. Moreover, the repayment is distributed among several fixed installments over a prolonged loan term, unlike credit cards, in which the due amount must be paid after 30 days. 

What is the minimum credit score for a personal loan?

Your credit score is a criterion for personal loan application approval and a significant factor in deciding your loan amount, interest rate, and loan term. For most lenders, the credit scores of their personal loan debtors must be 650 or above. However, we provide bad credit scores personal loans as well.