The different types of lenders when looking for a personal loan and their average interest rates



When looking for a personal loan, it is important to know the different types of loans available, as different lenders cater to different objectives you might have.

Banks: This is the most well known and common lender. Banks have the most amount of assets so they are able to lend with lower interest rates, however they have the strictest guidelines to being approved for a loan and usually take the longest to receive the funds. Some requirements for a personal bank loan are a decent to good credit score, a consistent income, and clear payment history. Typical interest rates depend on the borrowers credit history and range between 10 percent to 18 percent.

Credit Unions: The main difference between a bank vs. a credit union when it comes to lending is that credit unions are more consumer oriented than banks, who focus their funds mainly on commercial. Thus credit unions are more credit friendly than banks to lend to individuals, but they still have guidelines to get approval. Interest rates are comparable to banks, they just might have more flexible guidelines to approve.

Pay day loans: Pay day lenders have the highest interest rate for personal loans, but their quick funding time (sometimes within a day) and easy qualifying guidelines can be an attractive offer to those who might not qualify otherwise and need the cash fast. Standard rates range between 400 percent – 600 percent annualized, but most loans are given for a term of only a few weeks

Hard money loans: Hard money loans are loans on a borrowers real estate property. Property owners who use hard money lenders use them because their property might not qualify for a mortgage, or they need the money faster than the time mortgages can fund. Hard money loans are shorter term than a mortgage , typically for 2-3 years with a loan to value ratio of up to 75 percent. Rates range between 10-18 precent with standard upfront origination (service) fee of 2-3 percentage points of the loan.

Auto Title Loans: Auto title loans use a qualified car as collateral for the loan. Though the borrower is still able to use their car, the title on the car is the lender. So until the loan is paid back, it is in essence owned by the lender. Auto Title lenders typically require the car to be free and clear (no other loans on it). Rates vary, and can be  low (10-20 percent) to high, upwards of 400 percent annual. Terms vary between a year to two usually.

Pawn Shops: Pawn shops are to consumer what equipment/asset lending is to businesses. Pawn shops agree to hold an item you own as collateral while they give you a loan, usually at a much shorter term than banks or payday companies. Interest rates depend on the value of the collateral, the higher the value the lower the rate, and the lower the value, the higher rate. Typical rates can range from 60 percent a year to 240 percent.

Peer to Peer Lending: This is a fairly new industry in which borrowers are matched with private consumer lenders (individuals or small companies who lend out their money). The approval is usually done by the lending platform who charge a fee on their services on top of the interest you would pay to the lender. Rates can vary, depending what is agreed with the specific individual lender.

As you can see, every type of loan can meet your need depending on your situation. Even after you choose the type of loan you want, it is important to due as much due diligence and compare the loan companies to make sure you make the right decision.




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