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How do I get a Cheap Personal Loan?

Article Details
  • Written By: Carol Francois
  • Edited By: Heather Bailey
  • Last Modified Date: 14 August 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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A cheap personal loan is a financial instrument that is available from a range of financial institutions. Personal loans are provided based on a combination of personal credit rating, salary, and debt to income ratio. The funds available vary widely, but typically range from $1,000 to $50,000 US Dollars (USD).

There are two types of personal loans: secured and unsecured. A secured loan is usually tied to property or an asset, which can be repossessed if the borrower does not pay. An unsecured loan is based on credit and if the borrower does not repay the loan, the financial institution will need to file a lawsuit to reclaim the money.

In order to qualify for a cheap personal loan, take the time to review your personal credit rating. This three digit number is calculated based on your credit history. In the United States, there are three companies called credit agencies who track personal credit history. Every request for credit is submitted to these agencies by the credit-granting firm.

The number of inquiries, dates, level of activity, current debt load and the status of that debt is provided to the lender. This information is compiled into a credit score, which is used to determine the amount of the loan, the term, and the interest rate. The score ranges from 0 to 900, the higher the score, the better the credit rating.

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Interest rate is a percentage value used to calculate how much the borrower needs to repay, in addition to the principle, or original amount borrowed over the length of the loan. This amount is called interest and is how the financial institution generates revenue on its lending activity. The higher the interest rate, the more the interest costs will be. In order to obtain a cheap personal loan, the loan must have a low interest rate.

The other factor that determines the total cost of a loan is the term length. The longer the length of the loan, the more the loan will cost. To get a cheap personal loan, combine a low interest rate with a short payment term. This will result in higher monthly payments than a longer term, but will reduce the overall costs substantially.

The interest rate on a secured loan is usually lower than on an unsecured loan. The reason for the difference is the level of risk to the financial institution. The cost to the lender must include a provision for bad debts. A secured debt is less likely to become a bad debt, as the asset can be claimed and sold to cover the amount owing. This is not the case for an unsecured loan, which is why this type of usually has a higher interest rate.

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