Personal Loans

loan-application

Personal Loans

There are two types of credit, Revolving (credit cards) and Installment (loans). We’ve discussed how secured credit cards, when used properly, can positively impact your credit score; now let’s discuss the positive affects personal loans can have on your credit.

Personal loans can be unsecured (meaning no deposit required) or secured (a deposit required).  It is best to obtain a personal loan when you already have at least one (1) credit card reporting on your credit report.  10% of your credit score is based on having a positive mixture of different types of credit.

The best place to search for a good personal loan is a credit union.  They offer a great product called Credit Builder Loans that require you to be a member and to open an account equal to the amount you’d like your loan to be; similar to a how a secured credit card works. The amount you deposit with them is placed in an interest bearing account where it is held until you complete the terms of agreement for the loan.

The actual loan itself is small, between $500-$1000, and once it has been paid off, the deposit and all of the interest it has accrued is refunded back to you.  It is reported to the credit bureaus and is a great way to build credit. One of the things I love about personal loans are the fixed payments; totally easy on the budget :).

My advice on using it:  DO NOT SPEND THE LOAN MONEY.  Keep it in an account where its job is to build up your credit history and credit score.  You’ll have to add a little extra to account for the interest it will accrue but try to pay it down to 35% as soon as possible.  Installment accounts that have been paid down to 35% of the total amount borrowed count more positively into your credit score.  Pay off in full no later than 12 months and not the 2 year pay off term that they give you; the temptation to spend the loan money set aside tends to be too high for most, so avoid that temptation by paying it off within a year.

Two additional options for a personal loan that my clients love are:

Avant – GREAT option for those with a 600+ credit score, I’ve used them personally for pay off high interest rate credit cards in favor of a much lower interest rate personal loan.  Read terms carefully, if your scores are low 600s; the interest rates can be high.

Springleaf – Great for those with less than perfect credit! 550 Credit Scores & Up; loans up to $15,000. Secure online application.

These do not require a deposit but are great tools to build your credit using the Personal Loan option.  They are also great options when used as a debt pay off method.  Example:  If you have credit card debt with high interest rates, using a personal loan with a lower monthly payment AND a lower interest rate makes more sense financially in the long run.

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