Alternative Personal Loan

By | Financial Planning

You work hard to make your loan payments on time. But when life throws an unexpected curveball we all need a little help. Of course, for many people, the first instinct is to reach for is a payday loan. This may be a huge mistake as payday loan companies tend to prey on people without access to traditional credit.

Getting a personal loan, on the other hand, is a smart financial move if you fall behind on your payments and end up in collections. It’s a good way to consolidate high-interest debts, re-establish your damaged credit, and help you regain control of your personal finances.

Applying for a loan, in general, can be a stressful process. Even more so if your credit has seen better days. It can be difficult to get a personal loan from traditional lenders such as banks, credit unions or credit card companies.

loan approval

In this current economy, strict lending guidelines and employment scarcity make it difficult to get an approval without an established credit history or a good credit score. If you’ve been turned down for a loan because of less-than-perfect credit, luckily there are alternative lending options.

Alternative lenders recognize the need for a lending guideline that doesn’t just focus on your credit history. Instead, they use a slightly different set of criteria for those who demonstrate financial potential, and a desire to fix their credit and pay off past due creditors.

The Alternative Solution

Alternative lenders use nonstandard factors to ensure they can help borrowers who show a level of professional and financial promise. These atypical factors help get a better understanding of the prospective borrower since a credit score is hardly an accurate proof of someone’s potential.

A number of factors are taken into account when reviewing a loan application.
Typically, the initial review of a new application relies on the credit bureau and bank statements to get an idea of the client’s personal debt, income, and credit situation.

applying for a loan

The underwriters then consider the debt service ratio, which shows how much of the person’s income is put towards paying existing creditors and expenses. They also review bank statements to see if there are other signs that the client being stretched thin. These include, but are not limited to, payday loans or other high-interest lenders, and NSF (Non-Sufficient Funds) and/or Stop Payments transactions.

Some nonstandard factors that may be reviewed include bank and investment account balances, budgets and personal spending habits, income/employment history, and professional achievements. These, of course, vary from lender to lender depending on the underwriting process.

Loan applications

Getting a personal loan from an alternative lending company is quite simple, and relatively hassle free.

Usually, the loan application process is quick and can be done online, or by phone. The information you submit is absolutely confidential and includes basic details such as date of birth, Social Insurance Number, address, and employment details. At this initial phase, the company will ask permission to do a hard inquiry and pull a credit report, beginning the review process. This initial process averages around 10 – 20 minutes.

Once it is determined that you meet the minimum requirements for a loan application, additional documents are requested – such as bank statements from the past 90 or 180 days. The minimum requirements and type of additional documents requested depend on the lender’s preference and process. If you pass all stages of the loan application review, you are approved!

approved

Why go alternative?

Alternative lenders are there to help those with damaged credit or no solid credit history. For this reason, affordability of a loan is a major consideration besides credit history.

Always do some research into the type of lenders available before picking the one that best suits your need. Compare the loan rates being offered. Check out what type of borrowers they specialize in. If possible get a consultation.

It will ultimately depend on whether you need a lender specializing in helping fix your credit, or one that helps you get a loan without an established credit history.

Bottom Line

A rapidly growing market for alternative lenders offers a world of choices when it comes to picking the one that fits your specific loan needs.

If you’re having trouble getting a personal loan from your bank or credit union, one of these companies may be able to help you if you are financially responsible and either haven’t had a chance to establish a solid credit history, or just need help fixing your bad credit.

Make sure to do your research, and may the odds ever be in your favour!

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