There are several reasons behind getting a personal loan, including covering unexpected bills, financing a major purchase, or even consolidating high interest rate debt. Over the last decade, the avenues for securing a loan have increased, and the application and approval process has been upgraded to the digital environment to meet the needs of millions of borrowers. In 2016, it was reported that 24 million Americans utilized a personal loan, and the projections for this year are even higher.
While personal loans can be a great way to secure funding for life’s expenses, they aren’t readily available to everyone. Borrowers who have less than ideal credit may face challenges in finding a lender willing to loan them the money they need. When your credit is not in tip top shape, don’t fret. Here are a few alternatives that accomplish the same goal.
Use Your Assets as Collateral
Lenders offering personal loans often have stringent credit requirements to help offset their risk of losing out if the borrower defaults. Individuals who have a lackluster history of on-time payments, have significant debt obligations already, or have filed bankruptcy or had an account find its way to a collection agency most likely won’t qualify for a personal loan. Fortunately, a borrower with collateral has several options.
There are lenders that offset the risk of a low-credit borrower by securing a loan with collateral. For example, TNL Car Title Loans offers loans based on the value of a borrower’s vehicle and no credit check is required. To qualify for a title loan, the borrower must own the vehicle outright, meaning without a loan attached to it, and the vehicle must have equity, or value. In addition to car title loans, borrowers who own a home may be able to tap into their home equity to help secure a new loan. Most home equity lenders do require a credit check, however, as well as an evaluation of the home’s value.
Consider a Cash Advance
Another alternative to traditional personal loans is a credit card cash advance. Borrowers who already have credit cards open in their name may have the opportunity to transfer money from the available credit on the card to their checking or savings account. Credit card cash advances are quick and easy, and they do not require a check of past credit history. Borrowers should note that credit card cash advances have a higher interest rate than balance transfers or purchases made with the card, and fees for transferring funds may be part of the transaction.
Put off the Purchase
While not ideal, individuals who are unable to get a personal loan may be better served by putting off the big expense for which they planned to cover with the loan. Delaying a loan application until credit has improved allows borrowers to secure the financing they need without using assets on hand, and it may result in a most cost-effective interest rate when a loan is approved. Individuals can also set aside money in savings to help pay for the major expense partly out of pocket, reducing the total amount needed via a loan. When major expenses hit unexpectedly, collateralised loans or cash advances may be the smarter option, though.
Individuals with less than perfect credit are not completely out of luck when the need for significant amounts of cash comes up. Instead of applying for a traditional loan that may ultimately be declined, borrowers can look to secured loans, like title loans and home equity loans, or credit card cash advances. Each of these alternatives come with different requirements for qualification, amounts available, and time for repayment, but they can be viable solutions for financing unexpected or major expenses in a pinch.
Founder Dinis Guarda
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