Banks Make Personal Loans Even a Better Alternative
Without a doubt, one of the financial instruments that suffered the most during the economic crisis of a few years ago were Personal Loans. Thankfully, this useful resource has made an important comeback, with people from all over the U.S. applying for personal loans at their local banks in numbers that are increasing with time.
The reason for this is that several customers are considering personal loans an important tool to achieve different objectives. For example, many use their personal loans to make big investments, such as paying for a wedding, home repairs, travel and so. Likewise, there are people whose credit record is not ideal, so they make use of personal loans to pay all their debt, allowing them to take control over their finances in a very short period of time.
It is precisely this last reason – the desire of customers to get more disciplined in their finances – the one that has caused the most increased interest in personal loans. As Todd Denbo, senior vice president at Wells Fargo stated: “They [consumers] want a known monthly payment and a known light at the end of the tunnel.”
This of course, comes as excellent news for lenders, banks and other financial institutions, who saw personal loans acquisitions fall sharply in the years of the economic crisis. Now, personal loans have increased no less than 4.5% since just the first months of 2011 according to the credit bureau Equifax. But banks are not waiting for customers to come knock on their doors, they are actually ramping up their marketing efforts dramatically. In fact, it is because of these efforts that U.S. consumers received a staggering 424.8 million mail offers for personal loans in 2011 alone.
Another reason for renewed interest in personal loans comes due to falling home values and increasingly tighter standards for home loans, which have made them a far less common source of financing. This situation is so difficult that just 15% of homeowners who refinanced their mortgage loans in the past quarter managed to increase their loan balance. And even so, the amount of the increase – barely 5% – was the lowest in the past 26 years according to Freddie Mac.
There is always a risk when acquiring a personal loan of course: loan holders might be tempted to abuse the system and can end up piling far more charges than they can handle. In this respect, personal loans can be as dangerous as credit cards if used irresponsibly. Because of this, it is advised that customers close all existing lines of credit and pending debts right after acquiring a personal loan.
One of the most attractive aspects of a personal loan is that its interest rates are quite low when compared to the rest of the market, usually ranging from 8.49% to 14.49% for a regular personal loan taken for a five-year term. In comparison, rates for credit cards can go as high as 24.9% depending on the bank and on the type of card.
What is even more encouraging for customers is that nowadays, banks and other financial institutions look to woo customers by offering some excellent deals in personal loans, with low interest rates and longer payment terms being the most common benefits offered. Additionally, customers that agree to have payments automatically deducted from their bank account get even lower rates than the rest.
Of course, customers who benefit from this usually tend to be the ones with the best credit records, and banks and financial institutions also tend to hand-pick some customers to offer them “invitations” to acquire personal loans at preferential rates. In fact, banks are known to prefer customers with a credit score in the mid-700s. For reference, borrowers with good credit usually sport scores higher than 720.
To conclude, here is some advice for anyone looking to acquire a personal loan: If you can consolidate your debt and you can pay it off faster or cheaply, then a personal loan will certainly benefit you.