Choosing Where to Go for Your Personal Loan

Once you decide that a personal loan is for you, then you can begin to decide where to go. In the past your options were limited to just your neighborhood bank, but today you have more choices, although not all of them are good ones. Let's look at some of the possibilities so you can decide which is most appropriate for your situation.

Banks

While a few decades ago, banks were run locally by people from the community, today most of them are part of a few massive amalgamations of financial institutions which care more about profits than customer service. Despite this fact, banks are still the first venue most prospective borrowers examine for a couple of reasons. For one, most people are already loyal bank customers so it just makes more sense to keep doing business there. Another reason is convenience. You don't have to travel far in most cities to find a full service bank. A final reason is that banks do provide most people with a sense of security, which other options may simply not offer.

On the other hand, banks aren't usually happy about personal loans. Although they're popular with consumers, most banks simply don't think they're worth the risk. Instead, many banks may try to steer prospective lenders towards a credit card instead. Credit cards often have higher interest rates than personal loans, but they do force consumers to form a long-term relationship with the bank. The truth is that most banks won't even consider a loan application for less than $2000, so if you only need $500 or $1000 you may need to look elsewhere.

Credit Unions

While similar to banks, credit unions are often a much better option for borrowers. Credit unions are owned collectively by its members, not by stockholders, so they are generally more interested in assisting their customers. In addition to this obvious benefit, credit unions are also more likely to offer unsecured personal loans for smaller amounts. In fact, 60% will provide loans for less than $500. Some will also approve loans with only a limited credit check. Another reason to check out credit unions is that their interest rates and terms are usually more favorable than those at a bank.

Not everything is positive about credit unions, however. The biggest problem is that there are not as many around so for many people they simply aren't conveniently located. For example, most banks have numerous branches in any particular city while a credit union may only have one or two. Another drawback is that you do need to be a credit union member before you can take out a loan. To become a member, you usually only need to open a checking or savings account.

Pay Day Loan Services

For borrowers who need a small amount of money fast, so-called pay day loans are a popular option. These loans are typically available from specialized providers, from pawn shops, and from similar outlets. The borrower normally writes a post-dated check for the loan amount plus a sizable fee for interest. At the end of a specified period, such as two weeks, the check is cashed and the loan is paid off. These types of loans do have a few advantages. For one, borrowers are approved immediately so they don't need to wait for a decision. Another reason is that no credit checks are required; all a prospective borrower needs to bring in is identification, a check, and a pay stub.

While this type of loan may seem like an ideal option, it comes with a number of drawbacks. Borrowers only have a short repayment period so the loan amounts cannot be very large. Additionally, interest rates for these types of loans are much higher than at a bank or a credit union. Furthermore, many borrowers become entangled in as endless round of loans. They take out a loan to pay for their previous loan and so on and so forth until they become overwhelmed by the ever increasing debt. For most borrowers, the potential perils do not outweigh the benefits.

In the long run, the best option for most borrowers interested in a personal loan is still either a bank or a credit union. However, if those avenues aren't viable, it's good to know others are out there.

Previous: Basic Facts about Personal Loans

Next: Getting Best Deals on Your Personal Loan

Like this site? Please link to us.