Consumers are getting smart to credit card companies’ inflated interest rates. By using small personal loans to cover big purchases, savvy borrowers can sometimes enjoy better interest rates. Before you use your credit card to pay for vehicle repairs, college room and board, and minor medical expenses, consider requesting money from an alternative lending source.
A recent trend in the lending industry involves offering small personal loans packages up to $5,000. The surging popularity of online lenders makes it much simpler to gain access to funding.
This type of lending works best for those with good to excellent credit, as it provides an interest rate that can be lower than a credit card. Although, those with lower credit scores also use this option.
Personal loans for small amounts of money help consumers that have bad or no credit establish a pattern of paying lenders back in a timely manner. The loans are excellent financing options for first-time borrowers to gain the trust of the lending industry. If your FICO credit score is south of 550, a small loan used for personal expenses can help you regain control of your finances.
Small personal loans share many characteristics. Consumers pay back the loans in equal installments. It is important for the borrower to make sure that the loan payment fits within monthly budgets. The interest rate remains fixed to protect consumers against wild swings in interest rates. By introducing short-term personal loans online, lenders have opened up the market to consumers that do not want to put up collateral to secure financing. Instead, a lender might bump up the interest rate a point or two to account for potential loan default.
We have already mentioned how a personal loan can help newcomers to the financing game establish credit, as well as bolster the bad and poor ratings of consumers. Small personal loans also have other benefits that make it popular among a broad user base. Personal loans can be used for many different purposes. Unlike auto loans and home mortgages that must be used toward a car or house respectively, a personal loan offers the borrower a lot more freedom.
Here are some common reasons why consumers request small personal loans:
The last reason has become a popular strategy for reducing or eliminating consumer debt. By taking out a small personal loan, you can reduce multiple credit card balances to decrease the amount of money you send creditors for costly interest charges. Debt consolidation helps put you back on track to establishing a good credit score by removing one or more credit sources from your credit history. Some personal loans may have an interest rate that is higher than your credit card. It is important to calculate the average interest rate of all your debt to make sure it is higher than a potential personal loan.
One of the greatest benefits of small personal loans is receiving emergency cash within a short period of time. Some lenders can get the money in your account as soon as the next business day.
Depending on your credit score and ability to pay back a personal loan, a lender might be flexible when it comes to the amount of money approved for the loan. For example, if you own a credit score in at least the good range and what you earn per month exceeds the monthly loan payment by five times, then a lender may be willing to offer you a loan up to $40,000. However, most small personal loans are approved for less than $5,000, especially for consumers that want to establish credit or enhance bad or poor credit scores. The amount of money a lender allows you to borrow also depends on how long you are willing to make payments.
The United States Congress passed the Fair Credit Reporting Act (FCRA) to level the playing field between consumers and lenders. Congress has since amended the FCRA by adding statutes to bolster consumer protections against lender fraud. One statute has special relevance for consumers that want to take out small personal loans.
You are allowed one free credit report every year from each of the big three credit reporting bureaus, which are Equifax, Experian, and TransUnion. We recommend requesting a free credit report from one of the bureaus, wait four months, and then request another free credit report from a second credit reporting agency. Repeat the request four more months down the line for the third credit reporting bureau. You can also stay on top of your credit score by requesting a report from a credit monitoring services. Monitoring your credit score can help you prevent incorrect information from appearing on your credit history.
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