Guide to Personal Loans



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Sometimes, even with the most careful planning, saving, and budgeting, there isn’t enough money to cover all your monthly expenses or pay for an unplanned emergency or a big purchase. Whether you want to spoil yourself by buying a new TV, going on vacation, or you need money urgently to fix your car, personal loans can help you cover the expenses.

What to Consider Before Applying for a Personal Loan

Applying for a loan, even if it is only a small amount, is a financial commitment, and in order to go about it correctly, there are several things you must consider.

Your Credit Score

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Determining your credit score should be your first step, as it determines the types of financial institutions that will give you a loan and the loan types you qualify for. There’s a misconception that all financially savvy people have good credit scores while people who spend irresponsibly have bad credit scores, but this isn’t always true. Most times, young people have low credit scores that improve as they get older.

A high credit score is anything above 660, and a few factors are taken into account, namely:

Payment History

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Your payment history accounts for 35% of your credit score, making it the most critical factor. Banks want to see that you have debt and pay it off timeously, so the longer your payment history is, the better as long as the debt is paid off on time. This means you need to have debt first to qualify for a loan with good terms.

Amount of Money Owed

The amount of money you owe in total to all your creditors accounts for 30% and is the second most important factor. While it is good to have debt, if the amount you owe is too much, this can harm your credit rating. 

Available Credit Compared to the Amount You Use

Lenders want to look at how much credit you have available compared to how much you use. This isn’t a good sign if you’ve depleted all your credit. But if you still have a fair amount available, it improves your credit rating. 

Credit Mix

You must have a mix of different types of credit like a mortgage, student loan, and car loan, as this shows lenders that you are able to manage different loan types, provided that you keep up to date with your repayments. 

New Credit

If you’ve recently applied for many loans or secured a new loan, this can negatively impact your credit rating. While you need some credit, applying for many loans at once or applying for a new loan soon after securing one doesn’t look good, as it tells lenders you cannot manage your money.

How Much Money You Need

Before applying for a loan, you must be certain of the amount you need. Taking a larger loan than you need means you’ll pay more interest unnecessarily, but apply for too little, and you’ll be short. If you’re short and apply for another loan, it will count as a new loan and affect your credit score. 

The amount you need will influence where you can apply for a loan, as many traditional lenders like banks don’t offer loans under $1,000. If your situation is desperate and you really need a small amount, you may have to apply with a lender that provides smaller loans, but the terms may be unfavorable. In this case, it’ll be best to compare the terms of a bigger loan with the terms of a smaller loan and see which is the most cost-effective. 

Loan Costs

Costs associated with personal loans vary greatly and they include the loan amount, fees, and interest. The costs are affected by the type of personal loan, your credit score, and the lender’s terms. Costs vary by state. For example, CreditNinja loans in Katy TX will carry different interest rates and fees compared to a similar loan in New Jersey. 

Before accepting a loan, you must carefully review the terms and all the associated costs to ensure you can afford to repay it. 

Types of Personal Loans

There are various personal loans available, and your credit score determines the type you’re eligible for. Most personal loans are installment loans. You receive a lump sum and pay back the amount you borrowed, including interest, every month until it’s paid off. Personal loans are short-term and range between one to five years.

High Credit Score Loans

Securing a loan with a high credit score is simple. If your credit score is high, you can get a loan from a bank with a low-interest rate and reasonable terms, making it easier for you to repay the loan. There are two main types of personal loans:


 A secured loan carries the lowest interest rate but can be a risk for the borrower as they are required to provide collateral. Collateral can be your house, vehicle, or investment. If you don’t repay the loan, the bank will keep your asset to make up for the amount you owe.


You don’t need to provide collateral, so your assets are safe. Since the bank is taking a risk, the interest on unsecured loans is higher. 

Poor Credit Score Loans

Folks with poor credit scores may not be eligible for a personal loan from traditional lenders like banks. But other lenders offer bad credit loans that typically don’t require a credit check.

Payday Loans

A payday loan is an option if your credit score is low and you need money quickly. To secure a payday loan, you must be at least 18 and have an income. You must provide a bank account, phone number, and valid ID to apply. 

You can apply online or at the lender’s premises. The process is quick, and you can receive the cash almost immediately or within the day.

It may seem like a fantastic solution to your money problems, but the interest rate on payday loans is high, and you usually have only two to four weeks to repay the loan. 

Credit Card

Using your existing line of credit prevents you from needing to apply for a new loan. You can use your credit card to withdraw cash at an ATM at your convenience by setting up a pin code on your card. Another option is to transfer funds from your credit card to your checking account if you use online banking.

The amount available to withdraw or transfer is lower than your swiping amount and carries its own balance. 

Pawn Shop Loan

Pawn shop loans are secured, as you’re required to provide something as collateral. If you have a valuable item like a piece of jewelry, musical instrument, TV, or laptop, you can take it to the pawn shop, where the pawn dealer will evaluate it and offer you a loan based on 25-60% of its value.

Like payday loans, pawn shop loans have high-interest rates and may include other costs like storage fees and insurance. The repayment period is short, and you have a month or two to repay the loan. Failure to do so means that your collateral will be sold so that the pawn dealer will recoup the loan’s costs. 

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