You may need to borrow money at some stage in your life to fund a purchase or pay a bill. Emergencies creep up, and often, people don’t have enough money saved up or room in their budget to pay for these unplanned expenses. Other times, you may want to buy a car or go on vacation but don’t have the necessary funds.
It’s better to know the various loan options available before you need them, so you know exactly where to apply and what the requirements are:
Know Your Credit Score
Before applying for any loan, you must know your credit score. If you’re a young adult, you may be disappointed to realize that your credit score is low. It can be confusing, particularly if you have no debt and have never borrowed money. A person who has never borrowed has a low credit score because they have no payment history.
A good candidate for a loan is a person with a good payment record because lenders can see that they have a history of repaying their loans within the stipulated terms.
Your payment history accounts for 35% of your credit score. Other factors taken into account include:
- The amount of money you owe
- The credit amount you have available vs. how much you’ve used ! The mix of credit you have, for example, a student loan, auto loan, and personal loan
- Any new credit you have or applied for
Types of Loans
When searching for loans on lenders’ sites, you will notice many types, each with different terms and rates. The reason why you need a loan will determine the type of loan you should get.
For many youngsters pursuing a college education, a student loan is the only option to fund their studies. This loan can cover your fees, tuition, and living expenses for the duration of the time you are enrolled at a college. A student loan is a big commitment, so you must think carefully before taking one. Consider the major you will take and the kind of job you are likely to secure after graduating. Can you get a job that pays enough to repay the loan with your course?
While it’s important to follow your passion, it’s not a good idea to study something where there is no demand for that skill because then, after graduating, you will be stuck with a loan to pay back and no income to repay it.
If you would like to apply for a student loan, you have two options: a private or a federal student loan.
A few federal student loans are subsidized by the government and are meant to offer financial aid to students who come from impoverished backgrounds and want to study. Unsubsidized loans are available to anyone who wants to study but can’t afford them. Federal loans are usually more affordable, with lower interest rates and sometimes flexible payment terms.
Banks, private companies, and credit unions also offer student loans. Some of these lenders may require a credit check and will provide you with a loan based on your score. Private loans can offer a higher borrowing limit. Still, the interest rate is usually higher than a federal loan, and there is no flexibility regarding repaying the loan.
An auto loan can help you fund the purchase when you’re looking for a new set of wheels. Since cars depreciate, it’s wise to save up as much as possible to use as a down payment so that your monthly installments are lower.
You can use an auto loan to buy a new or used car. Interest rates and repayment terms vary by state and according to your credit score, but you are usually expected to repay your debt within two to seven years. Auto loans are secured loans, with the car being collateral. If you default on your loan, your vehicle can be repossessed.
You can use a personal loan for anything; to pay for an emergency, catch up on bills, buy a new appliance or consolidate existing debt. If your credit score is good, meaning 700 points or above, you are an excellent candidate and can secure a personal loan from a traditional lender with reasonable terms and a low credit rate.
For folks with a credit score under 650, there are loans like CreditNinja bad credit loans. Such loans often don’t require a credit check and can be approved quickly, which is convenient if you need cash in an emergency.
You can apply for a poor credit loan with a physical lender or online. The downside is that bad credit loans typically have high-interest rates and short payment terms, so only take this type of loan if you are out of options. The easiest way to apply online is to use a lenders’ network website. It allows you to submit your details once and apply to multiple Creditors. Lenders will review your details and offer you a loan. Before accepting, compare the different offers and go with the one that provides the best terms.