In today’s post we will discuss how to get a personal loan and how to invest it. Only do this when the return from the investment is higher than the loan interest.
5 Main Sources to Secure a Personal Loan
There are 5 main sources with which to secure a personal loan, all with their own distinct advantages and disadvantages. The higher your credit rating is, the more options you will have from which to obtain a personal loan.
1.) Banks / Credit Unions
To get a personal loan from a bank, you need to have a very good credit rating and the patience to wade through a ton of paperwork. The bank will want to know EVERYTHING about your financial situation, from how much you make per year to how much debt you currently hold. A personal loan from a bank will generally have a very competitive interest rate.
2.) Credit Cards
Perhaps the easiest loan to get, credit cards are everywhere in todayís society, and you need one to practically exist in America today. However, many people get into debt problems with their credit cards, as it is very easy to just swipe the plastic and forget about it.Tips on Budgeting – Free 5-hour Video Debt Course
3.) Family and Friends
Sometimes your best bet for a personal loan is your family and friends. You wonít have a mess of paperwork to fill out and generally family and friends will be more forgiving for late payments. But these loans have the potential to ruin a good relationship and the power to make life-long friends into bitter enemies.
4.) Peer-to-Peer Lending Networks
Lending clubs are becoming more and more popular as an alternative to banks for getting a personal loan. That being said, there are a few requirements you must meet to even be considered for a personal loan from a lending network:
- Must be a US citizen
- Must have a credit rating of at least 660
- Must have a debt-to-income ratio of less than 25%
Lending networks tend to have very low interest rates if you manage to meet their requirements.
5.) Payday Lenders
Payday lenders are a way to obtain fast, easy cash with no credit check or massive financial background check required. However, they tend to have exorbitant interest rates and have been known to be downright predatory to users who fail to pay the payday loan back quickly. But if you have awful credit and no family or friends who are willing to float you a loan, this may be your only option.
How To Invest the Personal Loan
Now that you have secured your personal loan, there are several choices with which you can invest the money and grow it, all with varying rates of risk:
1.) Investing in a certificate of deposit (CD) at a bank can pay you interest as high as 11% annually. However, you will not be able to gain access to that money, or the interest accrued for a set period of time, usually six months to two years.
2.) The stock market is a risky investment, but is also a way to make money, sometimes very quickly. Historically, the stock market has given investors robust returns on their investments, but it may take a long period of time to see any profit from your investment. You may actually lose money before you gain any. It is a good idea to be cautious when investing in the stock market.
3.) Putting the money in a savings account is the safest way to grow it by utilizing the bank’s interest rate on their savings accounts. However, most banks interest rates for savings accounts are far lower than the interest rate you will be paying on your loan.
4.) If you are entrepreneurial, you could invest in starting your own business with money from your personal loan. The internet provides many great opportunities to start your own business for very low startup cost and no overhead costs. To succeed in such a venture, you must learn how to market using the internet, as your business will either succeed or fail based on this.
Regardless of how you decide to get personal loans and where you decide to invest, it is best to err on the side of caution whenever dealing with investing money that you technically do not have. While the payoff could be extraordinary, the potential for account busting failure is just as real