Guide: Best Personal Loans | How to Find & Get the Best Cash Loans, Quick Bank Loans, or Pay Day Loans
Maybe you have something you need to pay for — a surprise medical bill, for example — but in your haste, you don’t want to let yourself fall into a pernicious cycle of debt, which often happens with pay day loans.
Perhaps you do not need to fund an emergency; rather, you want to fund something like a trip or luxury items. Certain loans allow for the borrowed money to be spent on such things.
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Essentially, this article will promote personal loans and how to get them, but we will also warn you about the possible drawbacks surrounding pay day loans or cash loans.
These days, many people are asking about personal loans, cash loans, quick loans, and where to apply for a loan, so this article will provide six tips on what to consider when taking out a personal loan.
We will discuss the importance of maintaining a solid credit score, making sure you read the fine print, and understanding the differences between fixed interest rates and variable interest rates.
What’s more, we’ll take a look at the common places to get a loan, so you’ll know where to begin your search when you want to apply for a loan.
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Definitions for Personal Loans and Pay Day Loans
Personal loans
In personal loans, a borrower can take a specific amount of money and spend it on anything he or she wishes. Personal loans often come in two types: secured and unsecured. With the secured versions, borrowers provide an object as collateral, such as a house or car.
With unsecured personal loans, no collateral is used, which makes the loan high risk for the lender; thus, the interest rates for unsecured personal loans are often substantial.
Pay day loans
These kinds of cash loans are probably the fastest way to get quick loans. With pay day loans, an individual borrows a small amount of money at a high interest rate. The general process consists of having the borrower write a personal, post-dated check for the lender, who will cash the check at a date in the near future (usually the next pay day of the borrower).
However, pay day loans are generally frowned upon and dangerous, as we’ll investigate in a later section.
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Top 7 Tips to Consider When Searching for Personal Loans, Pay Day Loans, or Quick Loans
Tip #1: Check Your Credit Score
As we have mentioned, unsecured personal loans come with interest rates. However, these interest rates will vary depending on several factors. A borrower’s credit score is arguably the chief determinant of the subsequest interest rate.
Why? Essentially, a borrower’s credit score tells the lender how much of a risk that borrower will be.
People with fantastic credit scores will be seen as less risky; therefore, they will receive lower interest rates on a personal loan. People with poor credit scores might be approved, but if they are approved, they’ll likely be stuck with a higher interest rate.
People with extremely poor credit scores — those who are not likely to be approved for a cash loan — do have a recourse: pay day loans. This type of loan is not approved based on credit scores. However, as we’ll see, pay day loans are best avoided unless you have no other options.
Tip #2: Know What You’re Getting Into
In other words, make sure you read the fine print for any personal loan or cash loan. Different lenders usually have different terms, so a personal loan or cash loan might come with late-payment fees, prepayment fees, or even penalties for paying off a personal loan or cash loan early.
Also, watch out for any origination fees. A lender may offer a lower interest rate but a higher origination fee — which can effectively do the same thing as raising an interest rate, when the total sum paid is considered.
In cash loans or pay day loans, make sure you can pay off the amount you’re about to write on a post-dated check. The seemingly innocent amount often traps people in a pernicious cycle of debt in these cash loans or pay day loans.
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Tip #3: Research the Current Trends of Fixed-Interest Rates and Variable-Interest Rates
Interest rates often come in two main categories: fixed or variable. With fixed interest rates, the rate stays the same for a particular duration of time — even when market rates spike. Variable rates, on the other hand, adjust accordingly when prevailing market rates increase or decrease. When shopping for bank loans, make sure to ask about both.
People often prefer fixed interest rates for the sense of added security; they know exactly what they’ll be paying and for how long. However, some experts believe that people save more money overall with variable interest rates because fixed rates generally have longer amortization periods.
The choice comes down to what people can handle financially. If they cannot handle the potential fluctuations that would come with a variable interest rate, then going with a fixed interest rate is the way to go. However, if people can absorb fluctuations in their payments, then they should choose variable rates, which generally save money overall.
In cash loans or pay day loans, considering fixed or variable interest rates does not apply.
Tip #4: Determine the Best Place to Get a Personal Loan
Bank loans and credit union loans often provide various personal loans. In general, credit unions are not-for-profit organizations that are geared toward serving members, rather than making a profit. This is important because this basic principle results in lower fees and interest rates for members. However, with bank loans, the bank might be willing to lend more.
Here’s what you need to know about taking out personal bank loans:
- Personal bank loans predominantly accept people who have high credit scores. In general, some two-thirds of personal bank loans are extended to people who have credit scores of 661 or higher.
- Most banks won’t divulge requirements for credit scores, but some do. If they do, the rate is generally high.
- However, since personal bank loans generally involve less-risky borrowers, they tend to be willing to lend more. The average amount lent in personal bank loans is $6,050.
Here’s what you need to know about taking a personal loan from a credit union:
- Credit unions are willing to provide loans to people with bad credit. Most of the personal loans provided by credit unions go to borrowers with credit scores of 660 or below, according to TransUnion. About one quarter are extended to people with credit scores of 600 or less.
- Credit unions average $3,502 for personal loans.
- Credit unions are more likely to extend loans to people who might otherwise be turned down, such as people in the Navy or Coast Guard.
Finance companies are another player in providing personal loans. “Finance companies” refers to all the various firms that are not banks but offer loans, such as online companies.
What’s more, such finance companies saw more loan originations in 2015 than banks did. Here’s what you need to know about taking loans from finance companies:
- Finance companies are the most likely to provide loans to people with poor credit. Seventy-seven percent of finance companies’ personal loans are provided to people with scores of 660 or lower. In general, subprime borrowers receive about half of finance companies’ personal loans.
- The average personal loans provided by finance companies are $2,200.
- People are opting for online personal loans for the convenience, lower interest rates, easy access, and partial loans.
The last bullet point, in particular, deserves further detail. Taking an online loan is one of the best ways to get a quick loan.
They are convenient because an individual can sign up for one from the comfort of his or her home; multiple trips to a bank are not needed. Online sites can provide lower interest rates because they don’t have extra expenses that stem from running several offices.
In regard to easier access, online sites are less stringent with whom they choose to provide with personal loans. (Bank loans, as we have mentioned, are quite strict.) This is due in part to the partial loans, in which individual investors can fund parts or the entirety of loans.
So if you’re looking for the best quick loans, going through an online site might be your best option. Due to online sites’ convenience, lower interest rates, easy access, and partial loan structure, they are worthwhile places in which to seek out quick loans.
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Tip #5: Determine Whether to Use a Personal Loan or a Credit Card
In some cases, using a credit card might be a better choice for people seeking quick loans. If people need to make smaller purchases, say a few hundred to a few thousand dollars, and they can pay it off in 12 to 18 months, then getting a new credit card with zero percent APR might be better than taking out cash loans or quick loans.
If people pay off the borrowed amount within the time limits, they won’t need to pay for interest rates.
Personal loans, however, are better when larger amounts need to be borrowed and when borrowers need more than 15 months to pay off those personal loans. Also, credit card limits are usually no more than $5,000; if the amounts they need are greater than that, a personal loan might be the better (or only) option.
People often use personal loans to consolidate credit card debt, as the interest rates are often lower. If an individual has different debts on several credit cards, consolidating all of the debt into a personal loan may result in achieving a lower monthly payment.
Tip #6: Stay Away From Pay Day Loans
Pay day loans are generally frowned upon and avoided by most (except perhaps in the case of extreme emergencies) because the interest charged turns out to be exorbitantly high. The same theme goes for online payday loans.
With pay day loans, a lender does not consider credit scores but rather a borrower’s work history and potential income. If people need quick loans for emergencies — but they have poor credit scores — they may want to consider taking out pay day loans, as these cash loans may be the only recourse.
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However, pay attention to the exorbitant interest rates. In these quick loans, a borrower will have to pay about $15 to $30 for every $100 borrowed.
Take this example: say an individual needs $500 to pay off some emergency costs, so he or she writes a $575 postdated check and receives a $500 two-week loan. Doesn’t sound too bad, right?
Well, that turns out to be about a 391 percent APR. And that’s actually a low rate when it comes to pay day loans. Average rates of pay day loans fall in the four hundred range.
What’s more, these cash loans generally cause a repeat cycle. About 80 percent of these loans rollover. After about six renewals, at the conventional 15 percent rate, a borrower will end up paying more in fees than the original loan.
What’s more, online payday loan sites are possibly even more dangerous, so be wary when searching online. Learn about your state’s laws for pay day loans; some rate limits may conflict with those of online payday lenders.
Pay day loans and such cash loans are not your friend: they want to trap you in prolonged debt. Use these fast loans only as a last resort.
Tip #7: Consider a Business Cash Advance
People should consider taking out a business cash advance (also known as “merchant cash advances”) if they have poor credit. In general, banks are hesitant to provide loans to businesses with bad credit, but other firms are willing to provide business cash advances to companies with strong sales.
An interesting aspect of business cash advances is that monthly payments are not calculated based on interest rates. Instead, monthly payments are based on a percentage of the credit card sales of the borrower’s company.
What’s more, business cash advances are a quick way to get cash, but you’ll have to do your homework to find a bank that will offer you this service.
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Conclusion: Getting Personal & Quick Bank Loans
As we’ve seen, there are several things to consider when searching for personal loans and other cash loans.
First of all, an individual needs to decide whether to take out a secure or unsecure personal loan. Secure personal loans can result in lower interest rates because a person uses something like a house or car as collateral; doing so tells the lender that the loan will be less risky.
Unsecure personal loans result in higher interest rates because no collateral is provided.
An individual should ensure that his or her credit score is in order before seeking to apply for a loan, as credit scores are possibly the main determinant of whether borrowers are even accepted and of what the interest rate will be for personal loans.
Banks are the most strict with requiring high credit scores, but credit unions and other financial firms (mainly online sites) often provide lower interest rates for personal loans. Banks, however, allow for larger loans on average when they do agree to provide personal loans.
People must also consider whether they should be seeking personal loans or other fast loans. In a certain contex, simply purchasing a zero percent APR credit card would save more money, such as when a borrower can repay a smaller loan amount in 12 to 15 months.
Personal loans are better in long-term paypment periods and for larger sums, in part because they generally have lower interest rates. What’s more, they are often used to consolidate credit card debts.
Pay day loans or cash loans should be approached with caution; look elsewhere to get a loan, if you can.
These fast loans are much criticized and generally cause a vicious cycle. Not many borrowers get away with taking out a single pay day loan; run the numbers and do your due diligence before signing up for a payday loan or any other loan.
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