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What Is A Personal Loan? - Roanoke Times

What Is A Personal Loan? - Roanoke Times


What Is A Personal Loan? - Roanoke Times

Posted: 12 Jan 2021 06:23 AM PST

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What Is A Personal Loan?

A personal loan is financing extended by an online or traditional lender that you can use for a range of personal purposes. If you're facing travel expenses, home or auto repair costs or other unexpected expenses, a personal loan can help you access the money you need—sometimes in as little as 24 hours. We'll walk you through how personal loans work, how to apply for one, and common alternatives so you can be sure you're making the right decision.

How Do Personal Loans Work

Personal loans are issued by a range of institutions, including online and peer-to-peer lenders, traditional banks and credit unions. Loan proceeds are dispersed as a lump sum, and interest begins to accrue on the entire loan amount as soon as the loan is issued. Interest rates and repayment terms vary based on the lender and the borrower's needs and qualifications. Origination fees also vary, but typically range from 1% to 8% of the loan amount.

Interest Rates

Personal loan interest rates depend on several factors, including the borrower's credit score, income and debt-to-income ratio. On average, rates range from just 3% for the most qualified borrowers up to 36% for applicants who pose more risk to lenders. Personal loan interest rates are usually fixed over the life of the loan but can be variable.

Repayment Schedule

In general, a personal loan term—or the time a borrower has to pay off a loan—varies from two to seven years. However, as with interest rates, these terms vary based on the lender, loan amount and the borrower's creditworthiness. A borrower's loan offer will include details about the amortization period, monthly payment amount and date by which the loan must be paid off. Use our personal loan calculator to get an idea of what your monthly payment would be.

Many lenders charge origination fees to cover the cost of reviewing the borrower's application, verifying their income and otherwise processing the loan. This fee is typically between 1% and 8% of the total loan amount, but varies by lender. In some cases, these fees are subtracted from the total loan amount, while other lenders tack the fee on to the loan principal.

Notably, not all lenders charge origination fees on personal loans—in fact, many advertise fee-free loans—so consider this when shopping for the most favorable terms.

Who a Personal Loan Is Right For

A personal loan is an excellent financing option for those who need to access a lump sum of cash quickly and without limitations on its use. While personal loans can offer fast and flexible financing, they can be expensive—with origination fees and interest charged on the entire loan amount. For that reason, a line of credit may be a suitable alternative for borrowers who need money over an extended period of time rather than all at once.

Applicants should have a credit score of at least 610 to 640 to qualify for a personal loan. Even so, prospective borrowers with lower credit scores can also qualify for personal loans, though the interest rates will likely be higher and the terms less favorable.

Types of Personal Loans

Personal loans can either be secured, meaning the loan is guaranteed by an asset like the borrower's house—or unsecured, meaning collateral is not required. Interest rates are typically lower for secured loans because this form of financing poses less risk to lenders; for the same reason, these loans usually have more lenient borrowing requirements than unsecured loans. That said, whether a secured or unsecured loan is best depends on the borrower.

Beyond collateral, personal loans also can have either fixed or adjustable rates. Fixed-rate personal loans are those where the interest rate and monthly payment stay the same for the entire life of the loan. This is the most common form of personal loan. In contrast, the interest rates of adjustable-rate loans change over time—usually starting out low and increasing after a certain period of time.

If you think a personal loan may be a good fit for your financial needs, familiarize yourself with the different types of personal loans before applying.

How to Apply For a Personal Loan

Personal loans are available from online lenders as well as traditional banks and credit unions. Prospective borrowers can typically apply for a personal loan online, but some lenders require an in-person meeting. While the application process varies by lender, follow these general steps when applying for a personal loan:

  • Check your credit score. Before you apply for a personal loan, check your credit score for free through your credit card issuer or another website that offers free scores. This will help you anticipate the likelihood of getting approved and can give you a better idea of what kind of interest rate to expect. When applying for a personal loan, aim for a score of at least 610; however, a score over 720 will yield the lowest interest rates.
  • If necessary, take steps to improve your credit score. Checking your credit score will also reveal whether you need to improve your creditworthiness before applying for a loan. You then can take steps to lower your credit usage rate or make other improvements based on your credit report.
  • Determine how much you need to borrow. Once you have a comprehensive understanding of your credit score, calculate how much money you want to borrow. Remember, though, that personal loans are issued as a lump sum, and you'll have to pay interest on the entire loan amount—so don't borrow more than you need.
  • Shop around for the best terms and interest rates. Many lenders offer an online prequalification process that lets you estimate your likely interest rate with just a soft credit inquiry. This means you can shop around for the most favorable loan terms without damaging your credit score. You'll often be able to prequalify in just a few minutes, but some lenders take longer.
  • Submit a formal application and await a lending decision. After identifying the most competitive personal loan option available, submit a formal application. At this point, you'll need to consent to a hard credit check, which can impact your credit score, and the lender will identify the exact terms of your loan. Depending on the lender, this process can take anywhere from a few hours to a few days.

What Can You Use Personal Loans For?

Generally speaking, you can use personal loans for any personal purpose unless it's specifically prohibited by a lender under the terms of the loan. However, there are many common reasons to get a personal loan. Here's a list of things personal loans are frequently used for:

That said, lenders prohibit the use of personal loans to fund illegal activities. Some lenders also restrict the use of personal loans to cover education-related expenses or to refinance other debt. Depending on the lender, you may also be prohibited from using the proceeds of a personal loan to cover business-related expenses.

Personal Loan Alternatives

Personal loans are a flexible financing solution for borrowers who qualify. However, depending on your needs and creditworthiness, a personal loan may not be the best option—or an option at all. Luckily, there are several popular personal loan alternatives to consider:

  • Savings. If you can cover your expenses with savings—instead of taking out a loan—you'll avoid fees and interest. Keep in mind, however, that taking money out of a qualified retirement account early generally comes with an early withdrawal penalty. So this option should be avoided when possible.
  • Credit card. When comparing personal loans vs. credit cards, credit cards typically have higher interest rates, but credit cards may be easier to qualify for if you have poor credit. However, if you have a strong credit score, you may qualify for a 0% introductory offer, which can save you money on interest payments.
  • Personal line of credit. Unlike a personal loan, which is disbursed as a lump sum, a personal line of credit lets borrowers access funds up to a certain limit on an as-needed basis. With this type of financing, the borrower only pays interest on what they actually access. This makes a line of credit an excellent option for projects or events where expenses will be spread over several months or years.
  • Home equity loan or line of credit. Home equity lines of credit (HELOCs) and home equity loans are financing options that are backed by a borrower's equity in their home. If you're considering a loan that's secured by your home, consider the differences between HELOCs and home equity loans before signing on the dotted line.

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Today In B2B: Small PPP Loans Cause Controversy; Bank Profits Sink - pymnts.com

Posted: 12 Jan 2021 11:30 AM PST

Today in B2B payments, some small businesses received less than $99 in Paycheck Protection Program (PPP) loans, and U.S. bank profits are expected to sink. Plus, Pilot Company collaborates on fleet factoring, Revolution Payments launches Level III commercial card processing and Porter Capital launches new PPP funding tools.

About 300 SMBs Received Less Than $99 In PPP

While the Paycheck Protection Program (PPP) was supposed to be a lifeline for struggling small and medium-sized businesses (SMBs) during the pandemic, some SMBs that received loans less than $99 didn't find much relief, The New York Times reported. There were roughly 300 businesses out of the over 5 million companies receiving loans that got $99 or less, according to the newspaper. "Judith Less, who runs a thrift shop in New Jersey, got $27," the paper reported. "Nikki Smith, a baker and caterer in Oregon, collected $96. A.J. Burton, the founder of a record label in Arkansas, got $78. And Susana Dommar, a chiropractor in Texas, received a loan for just $1."

Pilot Company, RTS Team On Fuel And Factoring For Fleets

To help trucking firms expand their businesses, Pilot Company and RTS Financial (RTS) have teamed up for a fuel and factoring partnership. The firms will work in tandem to offer tailored fleet offerings, according to a Monday (Jan. 11) announcement. Dedicated Pilot Company and RTS personnel will work with fleets to offer funding, fuel and key services. Fleets of different sizes will have the ability to simplify their business with Pilot Company's cross-network collection of fuel discounts, credit, truck repair and loyalty perks with RTS' advance rates and same-day funding offerings, according to the announcement.

Revolution Unveils Level 3 Processing For Salesforce Users

Revolution Payments has unveiled a Level III credit card processing offering for those who use Salesforce, according to a Monday (Jan. 11) announcement. The offering eases payment processing and alleviates the higher interchange fees for merchants that are applied without intervention to credit cards from other companies or the public sector, the announcement stated. Retailers that use the solution are signed up for the Revolution Payments complimentary "commercial card interchange optimization program," which reduces the cost of acceptance.

Porter Capital Offers New Funding Tools To PPP Recipients

Porter Capital, which works with accounts receivable (AR) financing and asset-based lending solutions, will provide more funding for businesses in need of extra money from their current Paycheck Protection Program (PPP) funds, according to a press release. "With the new COVID-19 stimulus package signing, many small business owners can apply for another round of Paycheck Protection Program loans," said Senior Vice President National Sales Manager John Cox Miller in the release. "In some cases, businesses will find the PPP loan amount isn't enough, or they no longer qualify. Obtaining additional loans through traditional banks can lead to a lengthy approval process and may not get approved at the end of the process."

US Banks' Q4 Profits May Drop Up To 40 Pct

When the largest banks in the U.S. start reporting fourth-quarter results, it is expected that profits will be down by as much as 40 percent from last year, Reuters reported on Monday (Jan. 11). Analysts are forecasting a 42 percent drop in fourth-quarter profits for Citigroup and a 39 percent decline for Wells Fargo. J.P. Morgan Chase is expected to drop by about 5 percent. All three will post results on Friday (Jan. 15). When earnings reports are filed the following week, Bank of America is anticipated to report a 33 percent profit decline.

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How to Apply for Fast Business Loans - Business.com

Posted: 18 Dec 2020 12:00 AM PST

They say the only two things certain in life are death and taxes, but in business, there's a third constant: the need for money. When you can't immediately cover that need with your own cash or assets, fast business loans may help. These funding sources can get you ample cash more quickly than more traditional lenders can. Read on to learn whether a fast business loan is right for you, what you need in order to get one, and what types of fast business loans are available.

Editor's note: Need a loan for your business? Fill out the below questionnaire to have our vendor partners contact you with free information.

Who should consider a fast business loan?

If your company is experiencing any of the following situations, you may want to consider a fast business loan:

  • Emergencies. Even if you have excellent business insurance, unexpected emergencies can create urgent needs for your company that require rapid but expensive fixes. That's where fast business loans come in. With these loans, you can fix the damage now and pay off the money used for this work later.
  • New company expenses. Starting a business is expensive, and so is growing one. Both of these crucial business tasks may require more money than you can feasibly generate from sales. With a fast business loan, you can get startup or growth funding much more quickly than you could through your standard revenue-generating routes.
  • Limited-time business opportunities. Let's say you're faced with an obvious business opportunity that requires fast action – a third-party agency that can take you on immediately, a limited-time bulk sale on key items in your inventory, a purchase of a smaller company that will go with another buyer if you don't purchase it now. Fast business loans make the money you need for these transactions immediately available.
  • Marketing campaign rescue. If your company has embarked on a midlevel sales or marketing campaign that isn't getting the results you want, you can change that with more funding. Fast cash that arrives in the middle of a campaign can allow you to upgrade to a higher-level campaign that may maximize your return on investment.
  • General quick-cash needs. Whether your company is brand-new or established, you'll likely have times where you need more cash than you have on hand – such as for payroll when you're waiting on payment for several invoices. If you need cash quickly, fast business loans can get it to you.

What documents are needed to apply for a fast business loan?

When applying for fast business loans, you'll notice that no two providers have exactly the same requirements. However, it's generally safe to prepare the following documents before applying for a fast business loan:

  • Basic business information. Most fast business loan providers will require you to provide your business name, address, contact information, and taxpayer identification number (TIN) or employer identification number (EIN). You may also need to provide all of the business owners' Social Security numbers.
  • Credit history. Sometimes, all you need to provide is proof of your credit score. Other times, you'll need to provide a more detailed credit history. Your credit history should show that you have no history of bankruptcies, as even one bankruptcy is often enough to disqualify you from access to fast business loans.
  • Business launch paperwork. You'll need these documents to prove how long your company has existed. Many types of fast business loans are available solely to companies that have existed for a certain number of years.
  • Business licenses. Occasionally, loan providers will ask for proof that your business is properly licensed. In this case, you can include just your original business license – leave out other licenses, such as fire permits and DBAs.
  • Company tax returns. Most fast business loan providers have a minimum annual company income that applicants must meet to qualify for funding. Use your company tax returns to prove that your income is above this minimum.
  • Bank statements. Often, you'll need to couple your company's tax returns with bank statements for thorough income verification. It's best practice to provide your most recent three months of bank statements when asked for any banking information.
  • Profit and loss statements. Lenders may want to see profit and loss statements to supplement your other financial information.
  • Online software information. Some fast business loan providers require you to detail any online systems that your company uses for e-commerce, sales transactions, payroll and more.
  • Loan history. Be prepared to show your entire history of loan applications and approvals. Some lenders may require this information to determine whether you're a smart choice of borrower.
  • Other basic business documents. You may also encounter lenders that require you to provide other basic business paperwork, such as your office lease, your basic company history and your mission statement.

You may also need to sign a personal guarantee or business lien that your lender provides. When you sign a personal guarantee, you become personally liable for any funds that your company cannot repay. Similarly, when you sign a business lien, you attach a company or personal asset to your loan, and if you can't repay your loan, this asset could be seized.

6 fast business loans

If you've determined that a fast business loan is right for you, gather the documents listed above, and then decide which of these fast business loan options may be the best fit for your company:

1. Business credit cards

Just as you can easily apply for and receive personal credit cards, business credit cards are a convenient funding source for your company. Business credit cards often have low or no fees, and you can avoid interest fees if you repay your balance on time. Approval can take just moments or as long as two weeks. When you apply, you may need to provide more information than the requirements listed above, including your company size, industry and tax classification. Most of the companies and banks that offer personal credit cards also offer business credit cards.

2. Invoice financing

Through invoice financing, or factoring, you can turn an unpaid invoice into a loan. This type of financing is available from factoring companies. If a client whom you've invoiced hasn't paid you and you need their cash now, an invoice financing company can loan you that amount of money. Sometimes, you'll get the cash you need just hours after providing basic financial information to the factoring company. However, collecting your client's actual payment – which you'll need to repay your invoice financing loan, fees and interest – could take much longer.

3. Short-term loans

This broad category of fast business loans comprises any loans you can receive within hours or days. Short-term loans require full repayment, with fees and interest, within one to two years. Short-term lender requirements often overlap with those listed above, though they may vary by company. These loans are available online through alternative lenders.

4. Merchant cash advances

A merchant cash advance comes from your credit card processing company. You'll get a cash infusion from your payment processor, and in return, the processor takes a cut of all your business's future income on that card. Alternatively, your card processor will regularly withdraw fixed amounts from your account. You can usually get cash within a day, but your loan fees may be exceptionally high.

5. Equipment financing

If you've ever paid for an expensive item in monthly installments instead of all at once, then you're familiar with equipment financing. Through this type of fast business loan, you can get equipment immediately and pay for it over time. You can often be approved within two days, and you'll have few paperwork requirements, since equipment financing is low-risk for the provider – the equipment itself is the collateral. If you fall behind on your payments, your provider takes back the equipment, leaving you back at square one with less cash than you previously had. This type of financing is usually available from businesses selling equipment, though many banks offer them as well.

6. Small Business Administration loans

SBA loans are often thought of as separate from fast business loans. After all, SBA loans are known for their lengthy approval periods. However, for SBA loans under $150,000, you may be able to receive funding in one week instead of several. Your requirements will be the same as they would with other lenders, but your interest rate will be lower and your repayment term longer. Though SBA loans are not as fast as the above options, the better interest rates and terms may be worth the wait.

What else to know before pursuing fast business loans

Even if you now feel ready to start applying for rapid business funding, you may encounter unfamiliar terms and concepts throughout your application process. Whenever you have questions, you can use the business.com business loan term glossary to help. Be sure to watch out for hidden gotchas as well – you shouldn't ignore sneaky long-term costs even if you need an immediate solution.

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