Personal loans, sometimes also called signature loans or unsecured loans, are loans given to people to fulfill some short term money requirements like a wedding, educational expenses, luxury purchase, or payment of an existing debt running at a higher interest rate. See here personal loans for bad credit and good credit available from banks, credit unions, or smaller financial institutions. Personal loans for bad credit – click to investigate.
People applying for a personal loan need to be very cautious in deciding who to take the loan from. A number of factors, such as interest rate, disbursal charges, prepayment penalties, payment period, and rollover rules, need to be compared before choosing the lender. The way it is essential for a borrower to choose the right lender, it is equally important for the lender to choose who to lend to meticulously. This is where the credit score of the borrower comes into the picture.
A credit score is a number calculated by financial institutions to assess the credit servicing ability of a borrower. Essentially this means that if a person pays all his loan dues and bills on time, he would have a high credit score. Similarly, someone who forgets to or intentionally does not pay his loans and dues on time will have a low credit score.
A person’s credit score falls somewhere between 300 to 850, 300 being the worst, and 850 being the best. Usually, a credit score of less than 600 is considered to be a bad credit score. Thus, a person with a credit score of less than 600 has reduced chances of getting a loan from any financial institution at favorable rates of interest or terms and conditions. Such people should work towards improving their credit score by looking at other credit avenues and making regular, timely payments.
Current Market Trends
Lending out personal loans is a very profitable venture for small companies and banks because of the high-interest rates chargeable, and also because of the high upfront fee charged at the time of disbursal of the loan. As a result, many new small companies have ventured into this market, and are trying to create their own space in the personal loan sector.
Though there are no signs of any warning signals as such for personal loans, it is important for all lending institutions not to lend blindly. A lender needs to keep his financial health in check in order to stay afloat in the industry, and thus he needs to carry out all documentation and checks diligently before deciding on who to lend to.
Checks and Precautions for lenders
Personal loans for bad credit may look lucrative in the short term, but a high rate of default can seriously affect the liquidity of a company and can lead to bankruptcy. Thus, lenders of personal loans for bad credit should ensure that they have sufficient surplus funds available with them, and the amount of money lent out should never be more than what they already have.
Moreover, while giving out a loan, the lenders must collect all relevant and accurate documents from the borrowers. In addition to checking the credit score, it is also essential to look at the checking account details, income levels, employment track record, and family history of the borrower.
It is quite evident that the personal loan industry has been booming, but for it to remain so, both the borrowers and lenders need to be cautious and make decisions wisely. The way lenders should not give out money blindly, in the same way, even the borrowers should exercise their intelligence before selecting who to borrow from and how much to borrow.
Over leveraging is not a healthy financial practice, and loans should never be considered as a means of living. They should be treated as a resolution for exigencies. In place of taking loans, the borrowers should rather look at planning their finances in such a way that they can accumulate a surplus fund to help them meet any unforeseen expenditure. Also, deferring a luxury purchase or following the strategy of saving before spending can go a long way in reducing the need to take a personal loan.