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How to Obtain a Personal Loan

Today, there are many options for obtaining a personal loan but the personal loan industry is much different than it was prior to the 2008 recession. Lenders have restructured lending practices and in doing so have created broader personal loan products that are available to the general public.

Secured or Unsecured Personal Loans

There are personal loans for borrowers with good credit and with less than good credit. However, the first decision to make when selecting from your options for obtaining a personal loan is whether you are willing to apply and meet the terms of a secured loan or if an unsecured personal loan is best for you.

To help make the decision, consider whether you have sufficient collateral that the lender will accept. Then, you must realize that if the loan is approved and you fail to meet the terms you will lose the collateral. If you are willing to post collateral that the bank accepts, you must understand your collateral is exposed to risk.

If you meet these two standards and decide the best option is a secured loan, you may qualify for a larger loan and your income or employment requirement may be much less than would be necessary for an unsecured loan.

If you choose an unsecured loan, you will not lose any collateral if you fail to meet the terms of the loan but income and your ability to repay will be viewed more closely.

Types of Personal Loans

Home Equity Personal Loan – The amount of this type loan is determined by the lender’s valuation of the secured asset and the amount of equity in the home as well as the borrower’s ability to repay the loan.

Home Equity Line of Credit – A Home Equity Line of Credit (HELOC) is available to homeowners with acceptable credit and who have sufficient equity in their home. This equity can be converted to a line of credit that is open to the borrower who is usually only obligated to pay interest on the outstanding balance.

Short-term Personal Loans – These loans can be secured or unsecured and are usually in comparably small amounts that can assist the borrower in solving immediate challenges. A working relationship with the lender can help expedite this type loan.

Payday Loans – A Payday loan is also known as a Fast Cash-Advance. This type loan allows borrowers who can provide payday information to the lender to access funds in advance of the receipt of the next paycheck. The immediacy of this type personal loan has broad appeal, but if you cannot pay on time, you may incur significant interest charges and late payment penalties.

Military Payday Loan – These are payday loans that members of branches of the US military can receive. Like other payday loans, these loans must be retired at the next payday.

No Credit/Bad Credit Personal Loans – These are personal loans specifically designed for individuals with bad credit or no credit. The amount of these personal loans is usually low and only extended by lenders who have relationships with the borrower.

Second-Chance Personal Loans – When an individual with poor credit has a personal emergency, this type loan can be the answer to a financial crisis. Documentation will be needed to support the application for this type loan.

Food for Thought – When deciding which option for a personal loan to apply for, borrowers should understand that lenders are strict about the application process. If you are not willing to comply with the lender’s application process, you may be wasting your time and missing out on available credit.