Unsecured personal loans are making a comeback, but you may not recognize these financial products which are now more commonly tied to reasonable interest rates and borrowers with high-tier credit scores.
That’s a far cry from the personal loans of the past, weighed down by high rates and hefty fees.
Lenders issued $34.5 billion in personal loans during the first six months of the year. That’s up 8.7 percent from the same period a year earlier, according to the credit bureau Equifax.
That’s the biggest increase for that six-month period since 2008.
The Wall Street Journal reports that lenders want to attract customers who are less likely to default. And banks are promoting personal loans as a way for creditworthy consumers to pay off credit-card and other types of debt that carries higher interest rates.
Personal loans are normally not secured by collateral. They can be used for a range of expenditures, including buying a car, or for paying delayed home-improvement projects or vacations.
Lenders are often approving these loans quickly for borrowers with strong credit. Most lenders check borrowers’ credit reports, of course. And they ask for income information, but proof of income and assets are often not required on personal loans for the best customers. If you’re worried about your credit and you’re wanting a small loan until payday, check out sites like små lån or other similar lenders.
Borrowers typically need at least a 760 FICO score, on a scale that ranges from 300 to 850, to be able to snag the best rates.
The Journal says that borrowers with the best credit can secure interest rates as low as 5.99 percent from First National Bank of Omaha, 6.75 percent from Wells Fargo; and 6.99 percent from Discover Financial Services. Rates can change based on applicants’ locations, and whether they have an existing relationship with the lender.
Those rates are much lower than the average interest rate on credit cards, which was near 11.8 percent in August, according to the latest data from the Federal Reserve. Even the best credit-card customers would not be able to get an interest rate below 9 percent, excluding short-term promotional rates.
According to the Journal, paying down a $10,000 credit-card balance at 11.82 percent interest over three years would cost a borrower $1,936. The total interest charges on the same balance at 6.75 percent interest on a personal loan would be $1,075.