Even after exhausting every resource you have, you might not be able to qualify for a business loan. When that happens, an option might be to take out a personal loan to get the capital you need for your business. Below is everything you need to know about personal loans:
What is a personal loan?
A personal loan can be used for just about anything. It is a loan made for any purpose not specifically defined or secured by a specific asset. Personal loans are usually made for general expense purposes.
There are several types of personal loans out there for borrowers. The two most commonly known are secured and unsecured personal loans.
A general purpose loan may be specifically secured by a cash flow or asset. Second mortgages are usually loans for short-term cash flow needs. Secured loans typically have a lower interest rate.
Unsecured loans have no specific claim on assets or cash flow. Instead the lender looks to the general creditworthiness of the borrower. Because this is a greater risk for lenders, they charge higher interest rates.
Primary Types of Personal Loans
These include peer-to-peer loans, home equity loans, home equity line of credit, short term personal loans, fast cash advance loans and military payday loans.
Most Common Reasons People Take Out a Personal Loan
- 49% of personal loan applicants are seeking a loan for consolidation of debt.
- 16% for business use
- 10% for home improvement
- 5% for education
- 4% for auto/vehicle
- 16% for other uses
Peer-to-Peer Lending on the Rise: Interest Rate Breakdown
The national average credit card rate is currently 14.68% APR, while peer-to-peer loan interest rates generally range from 6% to 9% with a fixed 36-month term. Peer-to-peer lending will soar at least 66% to $5 billion by 2013.
People who need to take out loans in order to pay off debt, finance their business, repair their home or other general expense purposes. 43% of American families spend more than they earn each year. Personal bankruptcies have doubled in the past decade, giving American more reason to take out a personal loan.
Understanding the Financial State of the Average American Borrower
The average American borrower has a credit score of 738, and gets an average loan size of $4,402.