Such loans can be offered by credit unions, banks, or other lenders. The amount borrowed is repaid with interest over a period of time specified by the bank. Some lenders might also charge a certain amount as fees for personal loans.

Types

You can either go for a secured or unsecured personal loan. In the case of a secured personal loan, some sort of collateral is required. Either cash assets or physical assets can be used as collateral. An unsecured personal loan doesn’t require any collateral. 

Both secured and unsecured personal loans are offered by credit unions, banks, and other lenders. As there’s no collateral involved, banks consider unsecured loans as risky. The borrower, therefore, has to pay a higher rate of interest for an unsecured personal loan.

Process of getting a personal loan

In order to get a personal loan, you’ll first need to to a lender and apply for it. Generally, the process begins when you submit an application to the lender. It is then reviewed by the lender and a decision is made whether to deny or approve the application. Once your application is approved, you’ll be given the terms of the loan. You can either choose to accept these terms or reject them. 

If you agree to the terms, the next step would be finalization of the paperwork. Once the necessary paperwork is done, the lender will release the loan amount. Normally, the amount is either directly deposited in your bank account. However, some lenders might also prefer to pay you the loan amount using a check.

Places to look for personal loans

Your credit union or your current bank is the first place to seek a personal loan. The choices in personal loans available would be offered to you. You’ll be given only those options for which you’re likely to qualify. Personal loans can also be found online. 

Today, there are many lenders that offer personal loans online. You can apply for such loans electronically and know about their decision within minutes. In some cases, you can get the amount of your loan within 24 to 48 hours after it’s approved.

Requirements of the lender

Lenders can have different requirements for getting a personal loan approved. Borrowers can check the minimum requirements necessary for them to qualify for a personal loan. Among the basic requirements are income, credit score, and the acceptable debt-to-income ratio. You can also do your bit of research to get a loan that matches your financial and credit profile.

Comparing personal loans online

Today, there are several websites where you can compare personal loans online. You can go through the terms offered by different lenders and take informed decisions. While making the comparisons there are certain things that need to be considered. Some of them are the repayment terms, interest rate, fees and collateral requirements.

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How prime rate is decided

The banks can lend each other money for covering their urgent reserve requirements. For this, they charge an interest rate that’s based on the federal funds rate. This rate is established by the Federal Reserve Bank’s Federal Open Market Committee. Many banks choose to set their prime rates, as the Federal Reserve has no direct role in this regard. 

The banks set the prime rates that are partly based on the target level of the federal funds rate. The prime rate has fluctuated greatly over the years. In the 1940s it was 2%, which is quite low. The 1980s saw this rate increase to more than 21%. The Federal Open Market Committee held a meeting on the 15th of March, 2020. In the meeting, the Federal Reserve reduced the target of federal funds rate to 0% to 0.25%. 

This was a part of the Federal Reserve’s efforts to combat the economic impacts of the COVID-19 pandemic. As a result, the prime rate came to 3.2%. When determining the interest banks to be charged on the borrowers, the prime rate is applied by the banks. 

The rates offered to borrowers

The corporations and other financial institutions receive rates that are either very close or equal to the prime rate. Rates that are slightly higher than the prime rate are offered to retail customers with strong credit histories. They are the ones who take out small business loans, mortgages, and car loans.

Rates that are significantly higher than the prime rate are offered to applicants with low credit scores. A loan given to an applicant with low credit scores is, therefore, called a subprime loan.

The amount of interest charged on a subprime loan is not the same everywhere. A borrower’s risk is evaluated by different lenders based on a variety of factors. This gives subprime borrowers the chance to save some money by approaching different lenders and comparing their rates. 

Many borrowers also stumble into the subprime lending market by responding to the lenders’ advertisements. It happens mostly in cases where they’re given a better rate than the one offered previously. On long-term loans like mortgages, the additional percentage of interest would be a big thing for borrowers. It can result in extra interest payments of a significant sum over the life of the loan. 

It would become difficult for low-income borrowers to pay off their loans. This is what happened during the late 2000s. A large number of borrowers began to default on their subprime mortgages in 2007. This led to a subprime crisis, which was a major contributor to the global economic slowdown. 

Many of the banks abandoned their business of subprime lending in the following years. This is beginning to change in recent times. 

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Bad credit leads to a low credit score. This is used as a reference by the financial institutions while making their lending decisions. Here, we’ll walk you through some of the major disadvantages that you may have due to bad credit:

1. Getting a job becomes a challenge

During your job interview, your potential employer probably won’t just ask for a list of references. The company may also seek your permission to run a credit check. This happens in the case of certain roles, which includes positions in management. 

Usually, this is to know whether the person being interviewed can be trusted for making financial decisions. In a survey done in 2016, nearly 29% of employers revealed that they run credit checks. So, it is important to remember that bad credit may also limit your ability to get a job.

2. Difficulty in getting a loan

Now, this must not come as a surprise. Banks would definitely want to know the chances of you paying them back. This is of great importance to them before they decide to give you a loan. A credit score shows how good you are with your payments. 

A low credit score would make it difficult for you to get a loan or a credit card. A credit score that’s between good and excellent is generally preferred by many banks and other financial institutions. If you don’t qualify, you’ll have to settle for a loan with high-interest rates.

3. Lesser options in renting

Borrowers are not the only individuals who need to worry about bad credit history. Your bad credit might also trouble you if you’re trying to rent a home. Many of the landlords would want to know your ability to pay them on time. For this purpose, they’ll obtain your credit report. 

If you’ve made some blunders in the past, getting a new home can be tough. If your credit history doesn’t look convincing, the landlord may demand a higher security deposit.

4. Trouble in setting up utility accounts

When you’re trying to set up an account with a utility company, your bad credit would become a hurdle. Before signing up, customers with low credit scores might have to pay a deposit. Even starting your service with a cellphone provider can be difficult with bad credit. 

If you don’t have a good credit score, you might have to opt for a prepaid plan. It’s also likely that you’ll have trouble qualifying for attractive deals on the most sought-after cellphones.

5. Higher costs of insurance

Certain types of insurers might take a look at your credit reports. If you have bad credit, there are chances of you being at fault in an accident. This is their general assumption. Life insurance companies don’t generally use credit scores as a part of their underwriting process. However, if you’ve got a recent bankruptcy, you’ll find it harder to get a policy.

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The problem arises when the very convenience provided by a credit card is used to accumulate unnecessary debt. The average household with revolving credit card debt in the US had an average balance of $6,849 in 2019. Another $1,162 was owed in average interest every year. 

This kind of credit card debt can prevent you from saving for your future. To avoid this from happening, here are our suggestions for using your credit card sensibly:

1. Avoid opening too many credit card accounts within a short period

You’ll be offered lots of credit cards with attractive features by banks and credit card companies. However, opening too many lines of credit increases your chances of accumulating debt. More credit cards would mean more payments and the need to keep track of them. 

Besides, opening so many accounts within a short period can have a negative impact on your credit score. As a result, you may be denied credit for months. It is, therefore, extremely necessary that you don’t open too many accounts within a short period.

2. Understand the terms of your credit card

Don’t be in a hurry to make your first purchases as soon as you receive your credit card. Go through the details of the credit card agreement carefully. This will help you avoid any unexpected fees. Different types of credit cards have varying percentages of fees and interest rates. 

You must know when you’ll be charged a fee and how interest will be applied. It must also be known when the interest rates would increase. To avoid these things, choose a credit card that’s appropriate for your financial goals and spending habits.

3. Spend wisely

You must make sure that you’re spending within your means. With the help of your credit card, you can pay for larger purchases and build a good credit score. To make this possible, it is important to pay your balance in full every month. You must not use your credit card to buy things that you can’t afford. 

If you do, you’ll find it difficult to pay off the amount within your billing cycle. Only make purchases for the amount that you can pay off within the card’s billing cycle.

4. Make timely payments 

Along with paying monthly towards your credit card bills, make sure your payments are made before the due date. You must ideally pay in full. If this is not possible, pay as much as you can. Don’t just pay the minimum amount stated in the bill. Today, most banks allow you to set up automatic payments. This feature facilitates the transfer of a set amount to your credit card every month on time. 

Paying before the due date prevents additional fees from being charged on the late payments. If your budget allows, you can also make two or more payments every month.

5. Keep the utilization ratio low

If you’re not paying the balance in full every month, keep a low utilization ratio. For instance, let’s say you have a credit line of $6000. Now, if you’ve made $3000 worth of purchases on your card, the utilization ratio amounts to 50%. This high percentage of users would make it difficult for you to pay off the debt. It would be a lot better if you have a utilization ratio of 30% or less.

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Such loans have a lower rate of interest and more favourable repayment terms. A debt consolidation loan can be an effective tool in dealing with credit card debt, personal loans, and other liabilities. Most individuals apply for such loans through credit unions or banks. Applications are usually approved if you have a good relationship and payment history with the financial institution.

Major types of debt consolidation loans

Generally, there are two types of debt consolidation loans. They have secured loans and unsecured loans. Secured loans are the ones that are backed by one of the assets owned by the borrower. This can be a house or a car, which works as collateral for the amount borrowed. On the other hand, unsecured loans are the ones that are not backed by any assets. 

Such loans usually have higher rates of interest and are of a lower amount. There are differences in the interest rates charged in both these types of loans. However, they’re still lower than the interest rates charged on credit cards. The rates are fixed in most cases, which means they do not vary over the period of repayment.

Other ways of consolidating debt

Besides secured and unsecured debt consolidation loans, there are other ways of consolidating debt. One of them is to get a new credit card. It would be a lot more beneficial if this new card charges little or no interest for a specific period. Using this credit card, you can consolidate all your credit card payments into this new card. Your home equity loan or home equity line of credit can also be used for debt consolidation. 

Individuals with student loans can also benefit from certain consolidation options provided by the federal government. This is known as the Federal Direct Loan Program. The new interest rate in this case would be the weighted average of the earlier debts. It must be noted that private loans won’t qualify for this program.

Debt consolidation requirements

In order to qualify for debt consolidation, you need to have sufficient income and creditworthiness. This is especially true if you’re approaching a new lender. The types of documentation required would depend upon your credit history. The documentation required includes a letter of employment and two months’ statements of existing credit cards or loans. 

You might also require letters from creditors or repayment agencies. Upon getting your debt consolidation plan, you must consider whom to pay off first. In most cases, this is decided by your lender.

Effect on your credit score

A debt consolidation loan might enhance your credit score in the long run. You can keep interest payments low by paying off the principal portion of the loan sooner. A boost in your credit score would bring you certain benefits. It would also make it easier for you to get a loan or credit card in the future.

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Membership of a credit union is just like being a stakeholder in one of the corporations. By becoming a member of a credit union, you don’t just buy a share in the institution. You also get a valuable voice in the procedures and daily affairs of the credit union’s branch. Another exciting thing about your membership in such an institution is that you get to vote on certain matters. 

These are mostly the measures directly affecting the community, which works in conjunction with the institution. One thing to be kept in mind is that a credit union is a not-for-profit provider of financial services. The rates that are associated with its loans and accounts differ greatly from the traditional banking institutions. 

Generally, credit unions are always the first preference for many individuals looking for auto loans. These institutions have lower monthly instalments and lesser rates of interest on loans. Therefore, there it can be very beneficial. Here are some of the other benefits:

1. They are more ‘understanding’

Credit unions take your situation into account. There’s always a possibility of hitting a rough patch in your life for some reason. In such situations, credit unions will make the necessary adjustments with regard to loan repayment. They will ensure the repayments are possible and affordable for you. And adjust accordingly. In the traditional banks, you can be more penalised as they are generally less understanding of personal situations.

2. Profitable repayment features

Most of the credit unions are now keeping up with the advancements in technology. You can make mobile and online payments in recent times for your credit union auto loans. A lot of credit unions are also giving their members the chance to finish paying down their loans early. 

They won’t charge you a penalty or a fee for early repayment. The traditional banks would try to extract the maximum from you in the form of penalties and interest.

3. Discounted insurance

You might be able to sign up for discounted auto insurance with a credit union auto loan. This greatly depends on the credit union you are with. And with this feature, your wallet is protected while making sure that the loan is repaid. Some credit unions also have certain programs offering mechanical service insurance. This ensures maximum coverage for the amount spent on repairs done on the vehicle.

4. A non-profit environment

This is one of the most delightful features of a credit union and the auto loan you hold in it. In many other financial institutions, you’re charged for all their services. Therefore, this includes the ones that are generally seen as basic components of holding an account in any financial institution. It is obvious that there are ulterior motives behind everything that they do.

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It opens the doors to the lowest interest rates available on them. It’s not so difficult to improve your credit score. You just have to do some simple things in a disciplined manner. To help you understand this better, we’ve listed some of these steps here:

1. Aim for a credit utilization of 30% or less

There are some simple ways to control your credit utilization. One of them is to pay the balances of your credit card in full each month. Credit utilization refers to the part of your credit limit you’re using at a given time. After your payment history, this is the second most important factor affecting your credit score. 

Try keeping your overall outstanding balance at 30% or less of your total credit limit. You can then work towards bringing that down to 10% or less. This would be an excellent approach for improving your credit score.

2. Consolidate your debts

If you have several outstanding debts, it is advisable to go for a debt consolidation loan. Once this is done, you can pay off all those debts. This works to your advantage, as you’ll have just one payment to deal with. You can pay off your debts faster if your debt consolidation loan has a lower rate of interest. This can improve your credit utilization ratio, which would obviously enhance your credit score. 

Another great strategy is to use a balance transfer credit card for paying off your multiple credit balances. However, you must be aware of the balance transfer fees. It would cost you 3 to 5% of the amount of your transfer. One good thing about such cards is that they charge 0% interest on your balance during their promotional period.

3. Avoid late payments

This is another simple way to make your credit score better. Late payments must be avoided at all costs and there are some small steps you can take in this regard. One is to create a file to keep track of your monthly bills. This can be a paper or a digital file. You can set due-date alerts on your smartphone to know beforehand when a bill payment is to be done. 

If possible, you can also automate bill payments from your bank account. Another excellent option worth trying is to use a credit card to make your monthly bill payments. One thing to keep in mind is that you’ll need to pay the balance in full each month.

4. Limit your new credit requests

Application for some form of new credit results in a ‘hard inquiry’. An occasional hard inquiry doesn’t have much of an effect. It is many hard inquiries within a short period of time that damages your credit score. They can adversely affect your credit score for a period spanning a few months to almost two years. 

Let’s say you’ve made new applications for different credit cards within a short period of time. Banks might assume that you’re facing financial difficulty. They think that you’ll use all these new credit cards to pay off your existing debt. So, the banks would conclude that you’re risky for them. 

Make sure that you don’t apply for new credit for a long time after your previous application. This would help in keeping your credit score from going down.

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The gambling industry was estimated to be worth $110 billion in 2020. What’s even worse is the fact that gambling gets more than 20 million Americans into debt. In order to pay for their losses, these individuals borrow money from different sources. Savings accounts, credit cards, and retirement funds are some of them. 

They do it with the hope of winning that one big amount that would clear their debts forever. Instead, the pile of chips become a pile of debt for most of them. Now, the biggest question is how to avoid getting into debt from gambling? Here we’ll explore some of the tried and tested ways:

1. Bank controls

There can be a sense of embarrassment in you to tell your bank that you have a gambling problem. Nevertheless, you must contact your bank so that they can come to your rescue. Banks can help you in many ways. They can temporarily put a freeze on your card to prevent you from spending on gambling. 

Another way in which they can help is by switching off your cash withdrawals for a certain period. They might also consider limiting the amount of money you can withdraw from the ATMs each day.

2. Creditors’ plans

If you’re already in a lot of debt and struggling to pay back, speak to your creditors. This must be done on priority before things get worse. You must understand that they can only help you if you tell them about your situation. Creditors might include your local council, loan providers, credit card companies, mortgage lenders, and your landlord. 

They can help you with an affordable payment plan. You can explain how you’re going to stop gambling in order to convince them.

3. Notice of Correction

You can add a note to your credit file, which is also called ‘Notice of Correction’. In this note, you can tell your potential lenders not to lend to you. This must be done when you feel that you’ll be applying for credit to pay for your gambling activities. By adding the Notice of Correction, your potential lenders would know what to do.

4. Responsible gambling

Some of the popular casino review websites promote responsible gambling. It is an initiative to educate gambling enthusiasts about the dangers of gambling addiction. So, if you want to play online casinos without getting into debt, check out Casinos Jungle. It is an immensely popular casino review site that has some excellent resources for players of online casinos. 
Under the ‘Guides’ tab on this website, you’ll find a section called ‘Responsible Gambling’. It acts as a guide for new as well as experienced players with regard to playing responsibly. This section takes players through some steps that they can take to make playing online casinos safe and fun. For further details,  visit www.casinosjungle.com.

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Landlords and insurance companies might also check your credit score. Your credit score shows how responsible you are financial. This information is then used for renting out an apartment or issuing an insurance policy. There are some key factors that affect your credit score. Let’s see what are they:

1. Payment history

There’s one question that lenders always consider before giving their money to someone else. The question is whether the borrower would repay the loan amount fully. Your payment history reflects everything related to your payments. It takes into account whether you’ve paid your bills on time for each account. 

Sometimes, there can be delayed payments due to certain situations. In this case, how late you’ve been with the payments is also considered. If any of your accounts have been sent to collections, it would also reflect in the payment history. It also takes into consideration foreclosures, bankruptcies, and lawsuits.

2. Length of credit history

Your credit score is also determined by how long you’ve been using your credit. Long credit history is always helpful if it doesn’t show any negatives, such as late payments. If you have a short credit history, that’s fine. The only condition is that you should be making your payments on time and your debt must be manageable. 

Experts of personal finance, therefore, recommend leaving credit card accounts open even if they’re not used. The account of that credit card would help boost your score.

3. Credit utilization ratio

You might be making your payments on time, but this doesn’t always give the true picture. There are other aspects of your accounts that the companies look at. Your credit utilization ratio makes it easier for lenders to understand how much debt you have. They determine this by comparing your overall debt to your available credit limits. 

An individual with a balance of $100 on a credit card with a $550 limit seems responsible. On the other hand, someone with $350 balance on a similar credit card would be considered risky.

4. A mix of different credit types

Another thing that’s considered while determining your credit score is whether you have a mix of different credit types. It means that you must have different types of accounts such as credit cards, instalment loans, and store accounts. 

This doesn’t mean that you must open new accounts just to increase the accounts in your credit profile. You don’t need to worry if you have lesser types of accounts. This is just a small component of your credit score.

5. New credit

The number of new accounts you’ve applied for recently is also considered while determining your score. Whenever an application is sent by an individual for a new line of credit, a hard inquiry is done. If you’ve opened several new accounts and their percentage is high, you’re considered a risky borrower. 

The lenders assume that you might be experiencing cash flow problems. Many people accumulate debt to ensure a good cash flow, which becomes a problem later on.

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The amount of such loans is small, usually around $500. You don’t need to go through a credit check for payday loans. These loans might be easier for many individuals to get. However, they can prove costly and harmful long after you’ve borrowed them. 

Dangers of payday loans

Under certain circumstances, some people might urgently need funds. Those among them who don’t have a good credit history can’t get the required amount from banks. Neither can they get the funds from online lenders and credit unions? This makes them the most vulnerable group for the lenders of payday loans to prey upon. 

Such lenders send the funds you need immediately into your bank account. This is done without any credit check. Many of the borrowers go for payday loans even if they don’t require many funds. Predatory lenders are always looking out for such individuals. Their activities have caused so much concern that some states in the US don’t allow payday loans. 

Most of the states in the country have regulations in place for payday loans. These regulations apply to repayment terms, the loan amount, and finance charges. Even with such regulations, interest rates go up to 400%. On the other hand, the interest rates on personal loans can be 36%. This is in the case of borrowers with a limited credit history or extremely low credit scores. 

The dangers of payday loans lie in their repayment period. Traditionally, personal loans have always allowed borrowers to repay the loan over a longer period. Payday loans require borrowers to pay the amount of the loan back within 14 to 31 days. 

Many borrowers don’t find the funds to pay back the loan within such a short period. They, therefore, end up borrowing more to repay their payday loans.

How payday loans work

You can either take out payday loans at an in-person location or online. For this, your state must allow payday loans. Many of the lenders of payday loans don’t ask for a credit check. Borrowers who have a bad credit history or no credit history can be easily enticed by this. Once you’re done applying for the loan, you need to write a post-dated check.

The amount of the check includes the loan amount, interest, and fees. If you can’t afford to repay by the due date, some lenders can give you options. Either they can renew or extend the due date by rolling over your plan. This attracts additional interest and fees.

The last option when in need

Payday loans are a way of getting money in your hands until you get your next paycheck. Although it is considered quite risky, it can be the only alternative when all other options don’t work out. You can try getting personal loans or borrowing money from your close friends or family members. However, if you’re still not able to gather the amount, it is the last option you have.

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