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If you need to borrow money for a personal reason, then you need a good old fashioned personal loan, at the best interest rate.
What Is a Personal Loan?
A personal loan is a fixed-rate loan that may or may not require collateral or a guarantor to secure it. If it does not, it is considered “unsecured.” If it does, it is considered “secured.”
Secured loans are easier to get, because it enables the lender to claim ownership of the item(s) you offered for collateral in the case that you do not pay your loan. Most lenders prefer to give you a chance to catch up however, or may allow you to miss a payment – though this usually incurs a fee or penalty which is then added to the total debt.
If you default on either type of loan, the lender may take action through a collections agency or lawsuit, and will also report the problem to the various credit bureaus, causing damage to your credit score and decreasing your chances to gain credit in the future.
Unsecured loans are available online and through some banks and credit unions. They are more expensive than secured loans, are usually for a shorter period, a lower loan amount, and are harder to get.
If you receive a personal loan, however, you can use the money for whatever purpose you want.
Do I need a good credit score to get a personal loan?
Not necessarily, but the worse your credit is, the more difficult you will find it to get a loan, the more expensive it will be, and the lower the overall amount will be. A higher income, lower expenses, or a reasonable argument that past credit damage was caused by a one-off situation that is not likely to occur again will all help you overcome a poor credit score.
If your score is less than 640, you are unlikely to get an unsecured loan, but you may be able to get a credit card that will assist you in rebuilding your credit score. These will have low limits, high interest, and can easily cause more damage to your score if they are not handled responsibly, but if you take care to pay the balance off each month, and don’t apply for more than one or two in total, it will help you to remove most credit blemishes.
If you want to take out a loan to help repair credit, try putting up some security, such as your home or car. Some people find a guarantor who will agree to back up the loan if the primary borrower fails to make the payments. This type of loan will not repair your credit as quickly, but it is a start and may open up other options as time goes on.
Some payday loan lenders will agree to lend you money without a credit check, based on your income, but be cautious – these lenders often charge interest in the triple digits, and the benefits to your credit score will be minimal.
Your best bet, if you don’t need the loan immediately, is to spend a few months building up your credit score. If you need the money now, a credit card may be the best way to build up your score and also secure some immediate spending power. Be careful though – don’t let a potential solution become part of the problem. Ensure you can make the payments before you spend the money or secure the loan.