Whether financial pressure builds day-by-day or lands in our lap as an emergency, we all face it at one time or another. The question is how prepared we are to deal with it. If our liquid cash fund is insufficient, we need to find other sources. Whatever our age, the stress can be all-consuming when we cannot meet a payment demand.
Luckily, thanks to the internet a solution exists that also does not care about our age. However, like any other financing commitment, we must investigate it thoroughly to be sure it is affordable and wise. For people with virtually all credit histories, as long as they have some form of income it is possible to research online personal loans, get applications processed and have funds released in record time.
A personal loan is a tool in your financial toolbox that can play a role when you have a one-time expense like consolidation of high-interest credit card debt or the costs of a move. It is usually ‘unsecured’ debt. That means the loan is not linked to collateral such as your house or another asset. These loans are generally for $1,000 to $50,000, sometimes going higher. They are repaid in fixed monthly payments over two to five years.
Your access to different kinds lenders depends on your credit. If it is good to excellent, you have a wide choice of lenders and preferential interest rates. Anything lower than that starts to limit the number (and kind) of lenders and raise the interest rates (and monthly payments). However, even with poor or no credit, there is probably an online lender for you, but the rates and payments can be high.
Some seniors pay off mortgages and credit cards, thinking they are preparing for retirement by removing most fixed payments. As a result, they may find themselves with no credit activity for several years. What they see as conservative behavior can be interpreted in the credit scoring world as them having nothing to show to lenders (who limit how far back they will look). These seniors may no longer be able to obtain a personal loan from the neighborhood bank unless they want to secure it against an asset.
Fortunately, the internet has made it easier for virtually anyone to find a personal loan that reflects his or her specific set of circumstances. The trick is to search without doing any harm to one’s credit score from too many credit inquiries, which is possible.
Life happens. No matter how careful we have been over the years with our finances, unexpected expenses or tax-based restrictions (on 401k withdrawals, for example) may leave us tight on cash. Then, if another financial surprise comes along, we may need to find a quick resource. Personal loans can be that resource.
Although the interest rates on personal loans are not always the best, having access to funds quickly, with fixed monthly payments, means:
- Being able to cover the expense without having to pull money from IRAs or investments at a bad time;
- Spreading the cost of an unexpected expense over a longer period, usually two or more years (although there is the interest cost of the loan to consider);
- Depending on your credit scores, possibly lowering the interest on credit card debt by consolidating under a lower-interest personal loan;
- Not having to call upon your adult children to help you meet a financial obligation; and
- Having access to cash for emergencies, even without a perfect credit history, as long as you have a steady source of income such as Social Security to justify it.
Our reason for taking out a personal loan may be to cover an emergency or to pay for something as joyous as a honeymoon. In either case, we will want to know the monthly cost of repaying the loan. We also want to know about any warranty, the ease of the application process, whether we can cancel and how customer service will support us if we need assistance.
After that, we want more information on the loan itself. For example, minimum and maximum loan amounts, how long the loan takes to fund, whether applying affects our credit score, in what states the loan is available, means of payment, penalties for early repayment and loan origination fees.
When you need a loan, your source (in order of preference) would be: from a bank, a credit union or an online lender. Your credit history and your credit score will define who you qualify to work with, and what kind of interest rate you will be offered.
Although few major banks offer unsecured personal loans, if your credit is good to excellent, they might. Being a customer certainly helps. Instead, they often offer other credit such as mortgages, home equity lines or credit cards. In a community bank, existing customers in good standing might be offered a personal loan.
Credit unions may be your best bet if looking for a small unsecured loan. These not-for-profit institutions aim to serve members in the local community and will work with those who have fair to poor credit. Becoming a member would be the first step.
Online lenders: Like many other markets, the online personal loan market is highly competitive and, as a result, lenders try to set themselves apart with special terms, advantages and conditions.
Online lenders can serve people with all different credit histories. The greatest advantage is the convenience of being able to explore your options and then pre-qualify for loans.Each time a lender runs a ‘hard credit check’ on you, it lowers your credit score by a few points. However, pre-qualification only requires a ‘soft credit check,’ which does not affect your score.
Only once you have decided to apply formally for a loan will a hard credit check be run, which is registered on your credit and subtracts a few points. Just be certain any website you visit where you intend to enter any of your information has an address that begins with ‘https’ rather than ‘http.’ That indicates a more secure site.
First, obtain your credit score and dispute any errors your report might contain. Then identify a list of potential lenders through online searches. With your credit information in hand, visit the different lenders’ websites and see if they offer a pre-qualification option. An online broker or ‘Marketing Lead Generator’ (a company that promotes other people’s loan services)usually has a website with that tool as part of its effort to market loans from many lenders. In any case, get confirmation from the lender that your inquiry about loan information will not trigger a hard credit check at this preliminary step.
Comparing offers: Once you have pre-qualified with a few lenders, start comparing the terms of their offers. You are not just interested in the interest rate and monthly payment. You want to compare the APR (Annual Percentage Rate) which adds in all extra fees, such as application or origination fees, to the interest rate to give you a more realistic idea of the true cost of the loan.Be certain to read all the fine print on the website, particularly related to any documents that support the loan you will take out: you do not want any bad surprises. You also never want to pay any money to anyone in advance to access a loan.
Next, check with your state’s regulatory bureau of financial institutions to confirm that the lender is registered to do business in your state. Of those lenders that are registered, if a couple of them are similar in their APR, look for extra features that make one more convenient than the others. Some let you select what date of the month your payment is due, which is important if your income arrives on a schedule, such as Social Security or a pension. Others may offer one missed payment deadline with no penalty, in case you overlook a payment.
Before you sign for the loan, be certain the terms are identical to those originally quoted. Sometimes a lender will initially quote a ‘representative’ APR which gets changed after they run your hard credit report. Also, reconfirm that the interest rate is fixed for the life of the loan, and not variable.
As we age or decline in health, other priorities might cause us to forget to make a payment. Your best choice would be to set up automatic payments deducted directly from your bank account, so you do not add penalties and late fees to your balance.
Two areas differentiate what seniors prioritize from what younger people do when taking out personal loans: age-friendliness and health-related value.
Age friendliness: As long as you are comfortable enough going online to research personal loans, your age should not affect your interaction with a potential lender. However, being a little older we want to think about the repayment timetable, not making it so long that we risk leaving an unpaid loan to our heirs.
Health-related value: Your health does not factor into the application for a personal loan. The only impact it would have is if you become too sick to manage your finances, and do not have someone who will. The other issue is that an unpaid balance will not disappear if you were to die during the repayment period. It will become part of your estate.
The amount you pay each month is dependent on the size of the loan you opt for, the interest rate you can get based on your credit history, and the number of payments you make (based on the payback period you select).
The interest rate available to you will be defined partly by the kind of lender you qualify to work with, i.e., a traditional lender (your neighborhood bank), a credit union or an unsecured personal loan. Online lenders will charge the highest interest rates, as they are willing to take the greatest risk with the borrowers they approve.
When comparing loan options, be sure to look at the APR (Annual Percentage Rate) instead of the declared interest rate alone. The APR combines the interest rate with all front-end fees, including application and origination fees, which must be disclosed in your loan documents.
Before signing for a loan, be certain to read the fine print of the contract to be sure there are no hidden loan terms or fees. If there are any, this is usually where they appear.
Ideally, you would have selected a loan that does not have penalties for prepayment or a fee for paying a loan off early. (This is also called an ‘exit fee.’)If there is a chance your need for the loan is temporary, and you can repay it faster than the terms you accepted, you want to be able to do so with paying a penalty. However, some lenders may insist you keep the loan open for at least a certain period, say one year; that way, the interest you pay helps cover the costs of having processed your application and set up your account.
Your lender may insist that payments be made automatically from your bank account. This could be helpful to you, too, if you are having any trouble at all remembering to make regular payments. However, you might want to have your bank set up some sort of‘ low balance’alert, so you never overdraw your account and incur overdraft fees.
‘Ease’ is the name of the game regarding what seniors want when dealing with financial issues. You certainly want to know the cost of repaying a personal loan. However, you also want to know how easy the loan is to obtain or cancel, if needed, and to get help if anything gets confusing or goes wrong.
Cost: To compare the cost of personal loan options, you want to look at the APR (Annual Percentage Rate) instead of only the interest rate, as it includes any extra costs and fees. If you are using online resources to pre-qualify for loans, you should obtain all the information you need to make side-by-side comparisons of two or three options. If two loan offers have the identical amount paid out to you and the identical repayment period, the one with the lower monthly payment will be your best option.
Ease: Once you have identified potential online lenders, pre-qualified with them and requested terms, you will want to select the one with the lowest APR. When you proceed with that lender, the formal application process should be quick and easy. (Some lenders can turn a personal loan around in one to three business days.) Payment options should also be easy, such as with mobile apps, direct deduction from an account, by debit card and more.
Cancellation: A personal loan is a contractual obligation, taken on willingly. As it is an unsecured loan and does not use your home as security, it does not automatically benefit from the 3-day cool-down period you would have otherwise under the Truth in Lending Act. Unless something in the fine print says otherwise, once signed and issued, the only way to cancel a loan is to repay it. You may have some fees and penalties to pay if you do so.
Customer support: Taking out a personal loan online has simplified the process by giving you access to certain standard information on lenders’ websites. However, do not forget this is a financial commitment. Any lender’s customer support team should be available during extended business hours by means that include online, email and phone to answer any questions or discomforts you have.
Thanks to the internet, the equivalent of ‘loan marketplaces’ have emerged as websites where you enter your information on a single application, and the website uses an algorithm that matches you with several lenders, to whom it sends your application. Some of these services regularly advertise on television.Lenders interested in offering you a loan will then get back to you, although you have no obligation to pursue any of the offers.
Because lenders cater to borrowers with diverse credit histories, the APRs of the offers can vary from single digits to very high rates of 40 percent, 50 percent and more.Lenders willing to take the greatest risks may have minimal requirements but may charge rates as high as triple digits in states where that is allowed.
High-risk lenders’ loan amounts may not be very high, and payback terms may be short. However, such lenders may only require that you be over 18 years of age, be a legal U.S. citizen and have a provable steady income (if you are no longer working, you might qualify with SSDI/SSI or Social Security).
The implication is that almost everyone can get a personal loan. The question you have to ask yourself is “At what price?”
However you come to receive offers for personal loans, it is critical that you follow all the suggestions in the ‘How to Select Personal Loans for Seniors’ section above. To protect yourself, you must qualify the lenders and read all the fine print.