The best way to find a personal loan for the holidays

Thursday, September 12th, 2013 By

strong credit score

Getting a personal loan for the holidays from a bank may be tough, but there are other ways to borrow the money you need. Image: CC NC Brian/Flickr

Personal loans customarily gain popularity during the holiday season. A personal loan for the holidays may be more difficult to secure this year than in the past, depending on your credit score. Interest rates are low, which is less of an incentive for banks, which are currently hoarding reserves, to lend.

Why personal loans may be harder to get

It may be more difficult to get a personal loan for the holidays because banks can borrow money from the Federal Reserve at interest rates approaching zero. Instead of risking default by granting personal loans, installment loans, mortgage loans and other forms of lending, banks are using that money to invest for profit. A prime example of this is the massive purchase of U.S. Treasury bonds by banks in 2010. Banks have purchased $127 billion in Treasurys since the second quarter, while loans have decreased by $68.5 billion. In essence, banks can borrow money from the Fed at near zero interest, then loan it back to the Fed at a much higher rate in the form of Treasury purchases.

What to expect when you look for a personal loan

The reluctance of banks to grant personal loans for the holidays means that only those with very strong credit scores can expect success — from banks, that is. The average interest rate on personal loans with a decent credit score is 12 to 18 percent. But if your credit is less that stellar these days, it doesn’t hurt to start with the bank or credit union where you put your money. An established relationship may improve your chances. If that doesn’t work, numerous lenders offer personal loans online. However, a lower credit score could result in interest rates as high as 20 percent.

A holiday loan alternative

An interesting alternative to those high interest rates on a personal loan may be peer-to-peer lending. Peer-to-peer lending takes the bank acting as middleman out of the equation. On peer-to-peer lending websites, consumers lend money to each other. On some peer-to-peer lending sites lenders bid to offer borrowers lower interest rates. Lenders choose who they lend to and make loans from as little as $25 up to $25,000. Getting a personal loan for the holidays from a fellow consumer could land a competitive interest rate without a perfect credit score.

Sources

Forbes

Subprime Blogger

Previous Article

« VerizonWireless.com/Storm Has the Goods for BlackBerry

You can purchase the new BlackBerry model, Storm2, at verizonwireless.com/storm starting on Wednesday... Soon BlackBerry users will have another option. Image from Flickr.
Next Article

It Could Take Short Term Loans to Pay Off This Credit Card »

First Premiere Bank is trying to protect itself with a new interest rate for sub-prime borrowers. The huge rate could necessitate short term loans to pay it off.

Other recent posts by bryanh

Short Term Loans Being Used to Fund Health Care Costs

As the Obama administration works to sort through the health care issue, Americans are left to use savings and short term loans to manage costs...

Efficient tips for reaching credit card debt relief

Learn how to reach credit card debt relief with "easy to adapt" strategies. Save money, create more income and start living debt free today!
Two women discussing credit card debt relief.

Five Steps to Consolidating Your Credit-Card Debts

If you have mounting credit-card debts, you might be able to reduce your monthly repayments and get back in the black faster with the help of a consolidation loan…