Understanding Personal Loans and Your Credit Rating
Trying to manage personal debt is not as easy as it sounds. With so many options and lenders offering loans for people with bad credits to help them pay down debt and save money through low-interest loans, it is difficult to know just where to start and if a personal can really help or only make things worse. A personal loan may be right for you if you want to consolidate debt or pay off high-interest credit cards.
The primary factor that will affect the type of personal loan you can receive as well as the amount of the loan and interest rate is your credit rating. If you are already in heavy debt or have damaged your credit score with late payments, then it will be more difficult to receive a low-interest personal loan. However, there are different types of personal loans but not all of them are good for consolidating debt or should be used to pay off high-interest credit cards. In fact, there are some types of personal loans that should be completely avoided.
Choosing the right personal loan for debt management
If you are looking to consolidate debt into one lower monthly payment with a lower interest rate, then choosing the right personal loan is crucial. Grouping together high-interest debt into one single lower single debt is what debt consolidation is, but it only saves you money if the personal loan has a lower interest rate than that of the credit cards or other debts. Besides banks and credit unions, there are other institutions that offer personal loans. Online lenders tend to be less strict with their credit score requirements but usually have higher interest rates. Some online lenders specialize in personal loans for those with poor or bad credit.
Many times these loans have very high interest rates and cost borrowers much more money over the long run. Payday loans are another type of personal loan that should be avoided. These short term loans are given as an advanced against the borrowers next paycheck. Payday loans can charge interest rates as high as 300% and often leave borrowers without funds on payday or constantly renewing the loan to make ends meet while still paying the fixed dollar fee that represents the interest rate. Because payday loans are generally given without a credit check, many people use them as a means for fast, easy cash without fully understanding the risk. Payday loans should only be used as a last resort and should be paid back in full as soon as possible.