Consumer loans are either secured or unsecured. This means they either require collateral (secured) or not (unsecured).
In most cases, secure credits are the cheapest because you back them up with collateral. Unsecured loans, on the other hand, are usually more expensive and have higher credit requirements.
But what if you can get cheap consumer loans? What if you can apply for a loan without collateral and get the best rates? You can go to forbrukslån.no to learn more about consumer loan rates.
In this article, we provide a step-by-step guide to how you can find the cheapest loans without collateral in the market.
Know the Cost of the Loan
You know how you have to do a market survey before drafting a company’s budget? That’s what you should do first here.
The market rates are constantly changing. There are periods when they are higher or lower. Aiming to get those lower rates is what you should be working on.
Haus, a financial technology firm, researched the impacts of borrower and lender characteristics on mortgage rates. Haus analyzed over 8.5 million mortgage originations from 2012 to 2018 using Freddie Mac’s dataset. After testing for seasonal impact on mortgage prices, they found that prices in January were mostly at the lowest compared to June or October.
While this data is not constant, it is a trend; there’s a higher chance of it repeating. You can read about the report here.
Also, include late payment charges and other costs like origination fees. Most lenders add origination fees to cover the cost of processing your loan. It can range from a few hundred dollars to more.
Study repayment periods and other conditions that may apply to your application for a personal loan.
Research loan rates to find the periods when it’s at the lowest. Calculate all amounts required (i.e loan amount + rates + extra charges).
Check your Credit Score
When considering a personal loan, lenders use a credit score to determine your likelihood of repaying it. The lower your score, the less likely you will pay back your loan on time.
Most lenders classify credit scores under three. They are:
- Excellent: scores from 670 and above
- Fair: scores within 580 to 669
- Poor: scores below 580
Check your score to know your category. Also, the class determines if you’ll get better rates or not.
For instance, those with excellent scores have a higher chance of closing a loan agreement with a lower rate compared to those with poor scores.
Although some lenders provide loans to borrowers with low scores, the repayment rates are often high. So, it’s best to maintain a good credit score.
To learn more about how your credit score affects your ability to get loans, read this article: https://www.investopedia.com/.
Find your credit score in your financial statement or request one from your credit card provider. Ensure that it’s in good condition – at least a fair score is ok. But if your score is poor, you should try to improve it before applying.
Decide How Much You Need to Borrow
Learn how much you can afford to repay before applying for a personal loan. You’ll want to calculate the amount of interest you’ll likely pay. Also, don’t forget to include fees associated with the loan, like those for closing your account after approval. If possible, it’s also worth looking into alternative financing options such as cash advances and overdrafts.
If you have a good credit history, you can obtain an auto or home equity line of credit (HELOC). This may also be one way of getting access without having to tie up your assets in a traditional mortgage product like a fixed-rate mortgage.
HELOCs allow consumers greater flexibility when it comes to paying off their debts. But it comes with higher annual percentage rates than personal loans do. However, these rates typically drop over time and become competitive once credit improves significantly.
Calculate everything you will need just like you did in the first step but this time, be more specific. Include extra cash for allowance in case of unforeseen charges.
Choose a Loan Type
The loan amount for unsecured personal loans varies significantly. It can be as low as $1,000 or as high as $50,000. But it’s usually between $2,000 and $10,000.
There are several categories of consumer credits. While some lenders will only provide you loans for a specific purpose, you can also get general-purpose loans.
Understanding what type of credit you need will help you find the best rates. Else, you’ll be trying to find a needle in a haystack.
To give you a better perspective of types of consumer credits, we provide a few reasons people take them below.
Debt consolidation involves using a new loan to clear your current debt. So, you reduce your debt load and maintain a healthy credit score.
Usually, consolidating a debt involves replacing old loans with a new one with lower rates. In other words, you will have just one debt to pay at the end of the day.
Making Large Purchases
A personal loan will be a good option if you run a business and need to pay for some goods. While some lenders might not offer a specific loan type that includes this option, you can get a business loan or general-purpose loan.
Buying Something Important Like a Vehicle or Home Improvement Project
You can get a car using auto credit. This type of credit is usually single-purpose. In other words, you can only use them to buy a car.
An automobile company or car dealer can offer their loyal customers auto credits. Also, you can get it from an online lender.
For houses, you’ll have to apply for a mortgage. Mortgages are credits that provide you with funds to purchase a home.
Helping an Aging Parent with Medical Bills
There’s no extent we won’t be willing to go for family – including taking loans.
A medical loan can help you cover emergency medical expenses. For instance, you can use it to pay for dental care or a loved one’s surgery.
Government and private hospitals offer this type of credit.
Understand what types of loans there are and what type you need. Knowing the category under which the loan falls will also make your search easy.
Look for a Lender That Offers the Cheapest Personal Loans
To find the best personal loans, compare rates and fees. To do this, use a comparison website such as MoneyPass or LendingTree.
You can also ask friends and family for recommendations on which lenders offer the cheapest rates. If you have an account with a bank that gives low-cost loans, they may be able to provide you advice on other options as well.
Take steps to find the best rates by comparing your options side-by-side. Several online resources can help with this. You can also read reviews online.
Prepare the Required Documents
Lenders ask for several documents, but these two are common and a must-have:
Proof of Income
Your lender will ask for proof from your employer that you have been employed and paid regularly in the last few months. An example of a document that can show this is a payslip.
Proof of Residence and Identity Documents
This document shows your current residential address and tells more about you. An example is a utility bill.
Try to keep all the necessary documents handy. You can scan and store them on cloud storage. This way, you’ll be ready whenever the lender calls for an interview.
Apply for the Loan
After finding a lender with the best rates, fill out an application form and submit it. But don’t worry if you don’t have a computer handy—it’s easy enough to do over the phone or through an online platform like Google Docs.
After completing your application, wait until you’re approved for a loan before moving forward with any payments.
To sum up, you need to find a personal loan that is within your budget and fits your needs. By following the steps above, you will be able to get the lowest possible interest rate and have access to some of the best deals around.