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Personal Loans

Frequently asked questions regarding personal loan related personal finance topics

Q: What are personal loans?

A personal loan is simply a loan, usually unsecured, that is taken out in a lump sum by an individual for their personal use. Traditional personal loans are commonly offered by larger financial institutions such as banks, credit unions, or financial services firms, who evaluate your credit in order to make a credit decision. Normally, the loan is paid back in monthly installments, with terms not exceeding five years. Payday loans, which have proliferated in recent years, technically fall into the category of personal loan, but differ in several aspects to a traditional personal loan. Payday loans require no evaluation of your credit and repayment of the loan occurs automatically with the deposit of your paycheck.


Q: Can I get a personal loan for debt consolidation?

Personal loans can, and often are, used for debt consolidation purposes. Keep in mind that personal loans, since they are usually unsecured, are harder to get than other secured types of loans, like a Home Equity loan. Lenders will use more strict credit guidelines with loan products that have no collateral. Personal loans, when compared to a home equity loan, have higher interest rates and lower loan amounts, but nevertheless it is an option for debt consolidation.


Q: What companies offer personal loans?

Banks, credit unions, and financial services institutions offer traditional personal loan products. The emergence of peer-to-peer lending clubs is a relatively new development in the lending industry that enable individuals to find personal loan products on the internet. Payday loan companies provide access to a short term, high cost, personal loan product.


Q: Can I get a debt consolidation loan without owning a home?

Homeownership is not required to get a debt consolidation loan, but it does limit the available options. The loan option available to non-homeowners to consolidate debts is an unsecured personal loan.


Q: Are government debt consolidation loans available?

The government does not have programs to offer conventional debt consolidation loans. The U.S. Department of Education does, however, have a program to consolidate existing federal student loan debt. Eligible for consolidation are all federally insured student loans, such as Stafford loans.


Q: Is free credit counseling available?

There are several well respected nonprofit companies that offer free credit counseling services. The National Foundation For Credit Counseling (NFCC) and the Association of Independent Consumer Credit Counseling Agencies (AICCCA) sites enable consumers to easily locate free or low cost providers of credit counseling services. Consumer Credit Counseling Services is an example of a well established, nonprofit, agency that is free of charge.


Q: What are the fees for a debt consolidation or debt settlement service?

The term debt consolidation, for most of us, equates to a debt consolidation loan. However, debt consolidation can also refer to a service, one offered by certain reputable credit counseling agencies. To find a nonprofit or low cost credit counseling company, search The National Foundation For Credit Counseling (NFCC) or the Association of Independent Consumer Credit Counseling Agencies (AICCCA). Debt settlement (link to debt settlement), on the other hand, is a service not provided by traditional credit counseling agencies. A plethora of small companies have sprung up in recent years offering debt settlement services, and no consistent industry wide cost structure has become apparent. Some companies may charge a percentage of the total debt- others may charge a percentage of the total savings. Consumers need to strongly consider all debt relief options before electing for a debt settlement service.


Q: What kinds of debt relief are available to people with bad credit?

The three main types of debt relief services are: credit counseling, debt settlement, and debt management. A debt consolidation loan is designed to lower a consumer's monthly payment on their debt, while ideally getting out of debt quicker. While debt consolidation is a sensible debt relief strategy, people with bad credit will often have difficulty getting access to this option if they have a poor credit score.


Q: Can I get a debt consolidation loan with bad credit?

In today's lending environment, it's extremely difficult for people with bad credit to get approved for a debt consolidation loan. Lenders simply are not taking on excessive risk. If you have an existing relationship with a financial institution it always makes good sense to talk to them first as they have a vested interest in your financial welfare. Consumers with poor credit and in need of debt relief should read up on these available services.