If you find yourself contemplating getting a personal loan, make sure you understand not only what it takes to get approval but also your lender’s terms of that loan. Not all lenders or financial institutions are created equally.
For example, are you considering using a credit union as opposed to a commercial bank? Both institutions are federally backed but they do offer different benefits. Generally speaking, big banks offer the convenience of several ATM locations and apps to conduct your business from your mobile devices. On the other hand, credit unions not only offer more personalized customer service, but they typically have lower interest rates on loans and higher interest rates on savings accounts.
If you live in Southern California and are in need of a loan, it is worth your time to investigate if a credit union in San Diego County can meet your banking needs.
Credit Unions vs. Banks
The above-mentioned differences are not the only things that separate credit unions from banks. Another factor that makes credit unions stand out from banks is their ownership. Investors often own big banks, whereas members own credit unions. That may not sound like a big deal, but it actually is.
When you have investors, they want a return on their money. The way they make a profit is by passing those expenses onto their customers through higher interest rates on loans, higher and more fees than a credit union. In short, banks’ driving force to success is making money.
In contrast, because credit unions are owned by their members, they may not have as many products to offer, but they are customer-driven. Working with a credit union you will have a more intimate banking relationship than you would with a bank. They also offer fewer stipulations for holding accounts. For example, banks assess fees for things such as not maintaining a minimum balance and the money they charge for banking errors like overdrafts are higher than credit unions.
It is important to decide which services and conveniences you find the most important and make your choice accordingly.
Why Take a Personal Loan?
Taking out a personal loan can be justified for nearly any legal and ethical reason. Usually, personal loans are unsecured. What that means is you have no collateral the lender can repossess if you default on the loan. Think of a car loan or a mortgage; if you default on either, the bank can take possession of your car or house because you’ve not lived up to the agreed-upon terms. Because there is nothing for the lender to take back if you do not pay as agreed, their risk is higher and therefore the interest rates they charge are higher for an unsecured loan.
Personal loans are not a bad thing. In fact, they can actually help improve your financial situation. If you’re paying several creditors high interest rates on individual credit cards, then you can take out a loan to consolidate several payments into just one at a lower interest rate. That’s a step in the right direction for a healthy financial future. Just make sure you don’t use those cards and run those balances back up.
Personal loans can also help improve your overall credit rating. If your debt is mostly credit cards, by getting a personal loan, you are incorporating a new “type” of account giving a more varied credit portfolio. You can also lower your debt to credit limit ratio which also boosts your credit score.
Although loans and debt are generally viewed as negative, there are ways to use loans to your advantage. Once you have your new personal loan, be sure to make your payments on time.