As financial technology continues to advance so to the various types of products consumers have available to them. Investing is certainly a market that has benefited from growth in financial technology, but another is consumer lending. Traditionally there was your mortgage, auto loan and business loan, but now personal loans have increased as product selection has increased.
Personal loans are smaller than your more mainstream loans and typically are uncollateralized. However, in some instances you can use collateral to help the approval process. Depending on your needs, it’s important to know the various types of personal loans, how they can be applied and what you want to watch out for.
Credit Union Personal Loan
First and arguably the most popular of the personal loan products is a personal loan from a credit union. Credit unions are a non-profit financial institution that usually offers its members better rates than a traditional bank. While traditional banks can offer personal loans, it’s less common.
The application process for a personal loan is fairly straight forward in most cases. Information you will need includes income, personal details such as your social security number and driver’s license number, as well as any co-signer you may have on the loan.
Interest rates on a personal loan are going to be higher than a mortgage or auto loan, but likely less than a credit card and payday loan. You can expect terms for a credit union personal loan to be between 2-5 years and the note is repaid through equal monthly payments. As far as personal loans go, this is likely your best option.
A personal loan through a credit union is typically used for small debt consolidation or an expense such as a home repair or auto repair.
Another personal loan type that many know about are payday loans. These are much different than a personal loan through a credit union and need to be used with caution. Depending on the state you live in, you may not have this option available to you. Payday loans have been under pressure from law makers for their alleged predatory practices.
To apply for a payday loan, the process is like a credit union personal loan in that you will need your personal details and any other relevant information. Depending on who are apply with, you may be able to apply for the loan online. Funding for the loan in most cases is same day, making it an option if you have a dire emergency.
One thing you need to watch for are the annual percentage rates and how much you will need to repay. The interest rates on a payday loan are extremely high and can make your financial situation worse. Also, a payday loan is meant as a short-term financial solution and should not be treated as a long-term financial solution.
Repayment of a payday loan is typically due when you are paid next. If you are unable to repay the note within a couple weeks, this is likely not the best option.
Last on our list of personal loans are tribal loans. Now this loan type is likely the lesser known out of all three but is a mix between a credit union personal loan and a payday loan. Tribal loans are different in that they are offered by lenders that are under the jurisdiction of the Indiana reservation they operate in.
The application process for a tribal loan is almost exclusively done online and typically you will receive funds on the next business day. A tribal loan is useful for emergencies and short-term financial needs. You will find on many of the website they clearly state it is an expensive form of borrowing and should not be relied on long-term.
When applying for a tribal loan, many of them are installment loans, which make them like a credit union personal loan. However, the interest rates are extremely high like that of a payday lender. The benefit is you can repay your loan early, saving you money on future interest expenses. These loans should be used sparingly and only as a last resort.
Personal Loan Market
The personal loan market continues to shift and evolve as technologies change. If these options don’t seem to fit your needs, you can always look at peer-to-peer lending. These loans are facilitated by investors who put up money to fund the loan. LendingClub is the most well-known in the market and is used by thousands. This is a healthy mix of a credit union personal loan in that your loan is an installment loan, but the interest rates will likely be a bit higher than a credit union personal loan.
Personal loans are an effective way to refinance credit card debt or to finance that home repair you’ve been putting off for years. Take the time to shop around and find the product with a competitive interest rate. Credit unions are a perfect place to start but if the situation is dire, you can turn to tribal loans and even payday loans. Thanks to financial technology, there is almost an option for everyone.