Institutions providing this type of lending options often operate through the Internet, which means their services are more convenient than old-school procedures. Moreover, applicants who are often rejected by conventional banks may still get a chance to improve their finances.
Overall, many factors are making loans more accessible and convenient. But will any borrower be approved? Here are the basics of the finance tool and typical requirements to meet for approval.
How It Works
As a borrower, you are provided with a lump sum that is to be repaid over a certain period that you and the lender have agreed on – on average, from 6 to 84 months. This is done by means of fixed payments withdrawn from your account every month. In terms of size, you may count on getting between $2,000 and $90,000 depending on the provider.
A major benefit of this option is the absence of collateral. This means you are not required to provide a guarantee in the form of your property or vehicle that the lender will seize if you fail to repay. With unsecured loans like this, all you need is to qualify.
How Can I Use It?
Whatever your spending intentions – whether it is a home improvement or education – do it prudently. The most precarious thing that can possibly happen with borrowers is getting sucked into the vicious cycle of debt when new loans cover existing ones with no steady income to repay any of them.
The key to proper use is prudent planning of the budget. You could use the amount for debt consolidation (i.e., repayment of old debts) as long as you can afford the monthly payments. You could use the money to buy a vehicle, to cover medical expenses or even plastic surgery.
Who Gets the Green Light
No lender is interested in dealing with a borrower who is sure to default on the loan. To establish your reliability, they will look at your past experience with loaned money. Two major factors here are your credit records and income. Neither collateral nor a consigner is needed.
This means loans are more accessible than their conventional counterparts, such as mortgages. Here is what your application is assessed by.
The exact requirements and level of leniency vary from provider to provider. Some are willing to accept a score of 700 and higher, some require much less. This indicator is quite telling, as it shows how likely you are to return the money borrowed plus interest. It is calculated on the basis of the following:
- Types of credit or loans used in the past.
- Their amounts or limits (in case of credit cards) and the share of those limits you actually used.
- Whether repayments were made on time.
- Unfavorable factors, such as collections, bankruptcies, etc.
It is important to understand that since there are several credit agencies, their data may differ. Besides, the score changes over time, based on the information gathered.