In the current financial climate, borrowing money can be difficult. Lenders have tightened their eligibility criteria, so it’s a lot harder to qualify for an unsecured loan. Although it’s in the interests of the banks to lend money to new and existing customers, they’re now far more selective than used to be the case.
You can still qualify for personal loans with less-than-perfect credit. However, as your credit score drops, the cost of borrowing rises. Lenders use a strategy known as personal pricing, so the APR reflects the credit profile of the customer. Flat-rate lending is no longer considered to be efficient or fair.
Peer-to-peer lenders, such as Prosper.com and Lending Club, are an intermediary or middle man. Investors, often regular people who are looking to achieve a better return on their savings, offer you the chance to take out a low-rate unsecured personal loan.
You aren’t getting a low interest rate loan from just one person, multiple investors will pool together to spread the risk of default. You can borrow money for any purpose, including home improvements, debt consolidation, medical bills, a wedding, financing a business or a vacation.
You can take out personal loans with less-than-perfect credit for up to $35,000. You don’t need excellent credit for a Lending Club loan, but you’ll need a credit rating of upwards of 660. If you have a fair credit rating – your score is at least 640 – you may be eligible for a Prosper loan for up to $25,000.
UK customers may be able to get a low cost loan for £15,000 from Zopa.com.
Unsecured Bank Loans
UK customers can get an unsecured cash loan for up to £25,000. For example, Nationwide offer loans for between £7,500 and £15,000 at just 7% APR. You can spread the repayments over a period of up to 7 years, but the lowest rates are offered when the term is 1 to 5 years.
It’s inadvisable to apply for a low-cost loan without performing sufficient research. You can trawl the market for the best deal at sites, such as moneysupermarket.com and comparethemarket.com. Always check the criteria to make sure that you qualify before making your application.
Home Equity Loans
The amount of equity that you have available in your property is the value of your home minus the loans that are secured against it. For example, if your home is worth $200,000 and you have a $150,000 mortgage, you have $50,000 of equity in your home or a 75% Loan-to-Value (LTV).
Homeowner loans are secured against this equity. The lower your credit score, the more equity you’ll need in order to get approval. This is because the likelihood of default rises as your credit rating drops. The lender wants to make sure that it’s able to recover its money if you default on the agreement.
Always remember that failing to keep-up with the repayments on a secured loan could lead to home repossession. Securing a debt against your property should only be performed when other options have been exhausted. Only borrow what you can reasonably afford to repay each month.