First-time borrowers are expected to face different challenges when acquiring a loan. For example, you will still need to make the lender believe that you can pay the loan without any difficulty despite your credit history or other financial credentials. Plus, the stigma of getting rejected is a common problem that most first-time borrowers encounter.
This is the reason why you must choose the loan option that you think best fits your situation. If you're a first-time borrower, the best thing to do is explore all the available options out there. To make that easier, below are the best personal loan options that you should consider:
Secured Personal Loan
A secured personal loan is a loan that's backed by collateral. Lenders such as CreditNinja require this collateral to protect the loan you're taking, especially if you have a bad credit score. Providing loans to individuals with bad credit scores is a huge risk for the lenders. So they demand collateral to reduce that risk.
If you default on the loan, the lender has the right to repossess the collateral as payment for the money you owe them. Property that can be used as collateral includes various valuables, such as a house, a car, or jewelry.
A secured loan is an installment loan, which means you can pay it off over a longer period. Whether you prefer a longer loan term or a shorter one, the best option is always to talk to your lender. See if they can customize a program based on your capacity.
Payday or Cash Advance Loan
Unlike an installment loan, a payday or cash advance loan is a short-term loan that requires the borrower to pay off the debt on their next payday. The principal amount of a payday loan or cash advance is usually a percentage of the amount on your next paycheck.
This type of loan has a higher interest rate alongside the short-term repayment plan. However, if you are a first-time borrower or have a bad credit score, this would be the best option for a fast cash advance.
Payday loans can only be acquired from direct lenders or payday lenders themselves. Banks and other traditional lenders don't offer this loan option to their customers. Therefore, if you consider this loan, you better check with your lender first to see if the option is available.
A third party backs a guaranteed loan, called the guarantor. The guarantor will be responsible for paying the loan if the principal borrower defaults on the loan. The guarantee can be either limited or unlimited.
A limited guarantee will only let the guarantor pay a portion of the loan, while an unlimited guarantee will require the guarantor to pay the loan's full amount. There are three types of guaranteed loans that you need to know.
The first one is the personal guarantee, which means an individual will be the guarantor and be held liable for the loan in case of default. The second guaranteed loan is the bank guarantee, which means that a commercial bank will be the guarantor for the loan and be responsible for paying the loan if the borrower defaults.
The third type of guaranteed loan is a financial guarantee, which is similar to a bank guarantee. Like an insurance company, a financial institution is obliged to pay the loan if the principal borrower fails to do so.
Credit Card Cash Advance
If you already have a credit card, this means that you already have an active credit history. A credit card cash advance is a short-term loan offered by your credit card provider. Here, you take out a cash advance against your credit line.
This is why credit cards are favored by many, as they don't only let you purchase things cashless but also let you get cash with it. In addition, there are a few ways you can acquire some money against your credit card's credit line.
The most popular and easiest way is through an ATM. You'll have to go to the nearest ATM and use your credit card the same way you withdraw money using a debit card. Another way you can get a cash advance is by going to a bank and requesting a cash advance on your credit card.
You can also get a cash advance through a convenience check. For example, your credit card might come with a convenience check. This allows you to issue a check to yourself against your credit card and choose to cash it out or deposit it directly to your bank account.
Although there are quite a handful of loan options available to first-time borrowers or people with bad credit, it's still best to take time to build your credit score. A good credit score will give you even more and better options.
To Wrap it Up
Always keep in mind that every loan you apply for will affect your credit score, especially if the application is rejected. Every application you submit deducts five points from your credit score. So it's helpful always to choose the best loan option and only apply if you're confident that you qualify for the loan.