What is a hard inquiry?

When you’re looking to borrow money to buy a home, car, or another large expense, you’ll apply for a loan to get the money you need. During the process, lenders will check your credit score, which is called making an inquiry on your credit report. These can be either soft or hard inquiries. Soft inquiries, also referred to as a soft pull, are credit checks that are typically used for prequalification and will not affect your credit score. A hard inquiry, also referred to as a hard pull, is a more thorough review of your credit. Hard pulls are reported to credit bureaus and have the potential to temporarily ding your score by a few points.

Here’s what we’re going to cover:

• What is a hard credit check on your credit report?
• How can hard inquiries impact your credit score?
• How long does a hard inquiry stay on your credit report?
• Hard inquiry vs. soft inquiry
• Can you dispute a hard credit inquiry?
• Oportun: Affordable lending options designed with you in mind

What is a hard credit check on your credit report?

A hard inquiry, or hard credit check, on your credit report is an official check from a lender that indicates that you’ve formally applied for a line of credit or loan. The lender will review the information in your credit profile to understand your creditworthiness and how well you’ve been able to manage credit in the past. The lender will use the information from your credit report and your credit score as part of their evaluation of your application.

How can hard credit inquiries impact your credit score?

A hard credit check can have a slight negative impact on your credit score, especially if you submit applications for a lot of credit all at once. However, a single hard pull when you apply for a new credit card may not even noticeably impact your score.

Applying for a lot of credit at once could signal to lenders that you’re a risky borrower or that you’re trying to take on too much debt at the same time. If you’re rate shopping for a car or mortgage over the span of a few weeks, credit bureaus may count the checks as a single inquiry. Keep in mind this favorable take on rate shopping for a vehicle or home won’t apply to other types of credit applications, like credit cards, which will be counted as independent hard credit pulls.

If you plan to apply for multiple types of credit unrelated to a home or car, you can consider spacing them out over a period of months. You can also check if the lenders offer a prequalification option that indicates whether you’ll be approved without running a hard pull.

How long does a hard inquiry stay on your credit report?

A hard credit inquiry will typically remain on your credit report for two years, but it generally doesn’t impact your score after one year. Since it may only decrease your score by a few points, you can typically combat the dip with responsible credit best practices like paying your debts in a timely manner and keeping your credit utilization low.

Hard inquiry vs. soft inquiry

There are several differences between soft and hard credit inquiries to be aware of. A hard inquiry may occur when you apply for a mortgage, personal loan, auto loan, credit card, student loan, or apartment rental or request a credit limit increase on your existing credit card. You must authorize the lender to check your credit when you submit the application.

A soft inquiry is a less thorough review of your credit report than a hard inquiry. Soft inquiries may be used during a credit check by an employer, or when you check your own credit score, or when you check to see if you’re prequalified for a credit card or other loan.

If you’re concerned about the impact of a hard pull, you can always check with your lender before you prequalify or apply for credit to understand which type of inquiry they’re submitting.

Can you dispute a hard credit inquiry?

If you’re reviewing your credit report and notice an inquiry that was done in error without your approval, you can dispute it with the lender and the credit bureau. Any hard credit check indicates an acknowledgment that you’ve applied for credit, so any checks you didn’t authorize could also be a sign of identity theft that you’ll want to look into right away.

Oportun: Affordable lending options designed with you in mind

Now that you understand how hard inquiries work, you can learn about how Oportun may be able to help you if you’re looking for affordable credit options. Visit our homepage to learn about:

• Personal loans
• Secured personal loans
• Savings
• And more!

Sources:

Equifax. Understanding Hard Inquiries on Your Credit Report

The post What Is a hard inquiry? appeared first on Oportun.

What is a charge-off?

A charge-off happens when a creditor thinks they won’t be able to collect the money owed to them by a borrower, usually after about 180 days of missed payments on a credit card. To manage their business, the creditor must reflect this on their financial books as well as reports it to the credit reporting agencies. Although the creditor counts the loan as a loss, a delinquent borrower still owes the debt and should pay if off.

Here’s what we’re going to cover:

• What does charge-off mean on your credit report?
• How does a charge-off work?
• How charge-offs affect your credit
• Avoiding a charge-off
• Oportun: Affordable lending options designed with you in mind

What does charge-off mean on your credit report?

When a charge-off appears on an individual’s credit report, it signifies that a creditor believes the borrower is unlikely to repay the debt. This status is a red flag to other potential lenders, landlords, and utility companies who depend on receiving payments from an individual. It suggests financial irresponsibility and an inability to meet debt obligations, making it harder for the borrower with the charged-off debt to obtain new credit in the future. It can also significantly damage one’s credit score.

How does a charge-off work?

Once a debt reaches the charge-off stage, the creditor updates the account status to “charged off” and writes it off as a loss. This action allows the creditor to remove the debt from its active financial accounts and claim it as a loss for tax purposes. However, the creditor may sell the debt to a collection agency. Then, the agency will attempt to collect the outstanding amount. Alternatively, the original creditor might continue its collection efforts or pursue legal action.

How charge-off affects your credit

A charge-off can be a damaging mark on an individual’s credit report, and it might . This negative mark will stay on a credit report for up to seven years after the date of the first missed payment that led to the charge-off. This can affect the individual’s ability to get new credit, rent an apartment, or even secure a job in some cases.

Can you remove charged-off accounts from your credit report?

Removing a charged-off account from a credit report is challenging but not impossible. One way is to negotiate with the creditor or collection agency to remove the charge-off in exchange for full payment of the debt. This is often referred to as a “pay for delete” agreement.

If there are errors in the reported information, you can dispute the charge-off with the credit bureaus. If the dispute is resolved in your favor, the charge-off can be removed from your credit report.

Avoiding a charge-off

Taking proactive steps can help you avoid a charge-off. If you’re struggling to make payments, here are some strategies to consider:

Ask for a payment plan

If you know you won’t be able to make a payment, contact your creditor as soon as possible. Many creditors are willing to work with you to set up a payment plan or modify your existing one to make payments more manageable. This shows that you’re making an effort to pay back your debt, which may prevent a charge-off.

Try budgeting

Creating and sticking to a budget may help you manage your finances more effectively and ensure you have enough funds to meet your debt obligations. By prioritizing your expenses and cutting unnecessary costs, you might be able to allocate more money toward paying off your debts and avoid falling behind on payments.

Oportun: Affordable lending options designed with you in mind

Now that you understand what a charge-off is, you can learn about how Oportun may be able to help you if you’re looking for affordable credit options. Visit our homepage to learn about:

• Personal loans
• Secured personal loans
• Savings
• And more!

Sources

Investopedia. What Does a Charge-Off Mean? Effect on Credit Score and How to Remove

Experian. What is a Charge-Off?

Equifax. What is a Charge-Off?

Time. What Is a Charge Off & How To Deal With It

The post What is a charge-off? appeared first on Oportun.

Amortization is a financial concept in the world of loans, assets, and investing. It essentially spreads the cost or value of something over time. With loans, it’s spreading repayment over time. With assets, it’s spreading the cost of the asset over time. Let’s explore amortization and how it’s used, some types, and how it differs from depreciation.

Here’s what we’re going to cover:

• Definition
• Types of amortization
• How to calculate
• Example of amortization
• Amortization vs. depreciation
• Oportun: Affordable lending options designed with you in mind

Definition

Amortization is a loan repayment structure that entails scheduled, periodic, equal payments applied to the loan’s principal and interest. It involves adding a loan’s total

interest to its total principal, and then breaking the sum into equal payments over the loan repayment period. Installment loans are typically amortized loans.

Why is amortization important?

Amortization helps individuals and businesses spread large debts, such as mortgages or personal loans, over a long period. This allows them to pay the loan in fixed payments that fit their budgets, making the large cost of the item more attainable.

Furthermore, amortization makes financial planning and decision-making easier. The borrower knows how much the loan will cost them each month, making it easier to predict their future costs and allocate their funds properly.

Types of amortization

Here are several types of amortization and how they work:

Loan amortization

Loan amortization is a common type of amortization. As mentioned above, it involves breaking a loan into fixed, equal payments of principal and interest over a defined timeframe. This payment structure gradually reduces the principal balance.

As the principal balance decreases, there is less principal on which to charge interest. This reduces the monthly interest charge. Each subsequent payment applies to a larger portion of the principal balance.

Amortization of intangible assets

Companies also use amortization to gradually reduce the value of intangible (non-physical) business assets, like copyrights and patents. These assets lose value more abstractly than tangible assets, such as equipment. So, amortization is used to estimate that loss in value.

Amortization and investing

Certain investments are amortized, such as bonds. Governments and corporations sell debt securities as bonds when they need to raise money. When you buy a bond, the government or corporation gets the funds up front, and repays it to you over time with interest until it’s repaid in full. The bond is amortized.

How to calculate

Use an amortization calculator online. You can enter each number into the correct box, and the calculator will create an amortization schedule.

This is the formula for calculating loan amortization:

A = P x [ { r(1+r)ⁿ } / { (1+r)ⁿ – 1 } ]

• A is the periodic loan payment
• P is the total principal balance
• r is the periodic interest rate
• n is the total number of payments

To determine the split between principal and interest in a month, multiply your principal balance by your annual interest rate. Then, divide that by 12 months to get your current month’s interest fee. Subtract that interest fee from the total monthly payment amount to get your monthly principal payment.

Example of amortization

Imagine you get a 30-year fixed-rate $100,000 mortgage at 4% annual interest. Payments are due monthly, meaning you will have 360 total payment periods (30 x 12), and your monthly interest rate will be 0.33% (4% / 12).

• P = $100,000
• r = 0.33333%, or 0.0033333 (about ⅓ of 1%)
• n = 360

A = P x [ { r(1+r)ⁿ } / { (1+r)ⁿ – 1 } ]

A = $100,000 x [ {0.0033333(1+0.0033)360 } / { (1+0.0033333)360 – 1 } ]

A = $477.42

Your monthly mortgage payment is $477.42. To calculate the first month, multiply your $100,000 principal balance by the 4% annual interest rate, or 0.04, to get $4,000. Divide this by 12 months to get $333.33. So, your interest amount is $333.33. Subtract $333.33 from $477.42 to get a principal payment of $144.09. Since your principal decreases after the first payment, each subsequent payment will have a smaller interest portion and a larger principal portion.

Amortization vs. depreciation

Amortization and depreciation are similar in that they spread out the decline in the value of products over time in a predictable fashion. Amortization is for non-physical items, for example, a loan balance gets smaller as it’s paid off. Depreciation is for physical items, like how a car uses value as it’s driven.

Oportun: Affordable lending options designed with you in mind

Now that you understand what amortization is, you can learn about how Oportun may be able to help you if you’re looking for affordable credit options. Visit our homepage to learn about:

• Personal loans
• Secured personal loans
• Savings
• And more!

Sources

Investopedia. What is an Amortization Schedule? How to Calculate with Formula

Ramsey Solutions. What is an Amortization Schedule and How Does It Work?

Investopedia. Amortization vs. Depreciation: What’s the Difference?

The post What is amortization? appeared first on Oportun.

Your credit score is a numerical value between 300 and 850 that reflects your ability to manage credit and debt effectively. The number is based on your credit report, which is a comprehensive look at your financial habits over the years, including whether you made payments on time and paid off loans in full.

Whether your credit score is deemed good can impact your ability to obtain credit, including where you can access certain types of credit like a mortgage or car loan and what type of interest rate you’ll qualify for. Beyond just accessing credit, your credit score may also influence your eligibility to rent a home, whether you’re required to pay a deposit on utilities, or how much you’ll pay for a life insurance policy. With credit scores influencing so many of your future financial decisions, there are steps you can take to help ensure yours falls on the higher side of the range.

Here’s what we’re going to cover:

• What is considered a good credit score?
• What impacts your FICO credit score?
• What can keep you within a good credit score range?
• The benefits of having a good credit score
• Oportun: Affordable lending options designed with you in mind

What is considered a good credit score?

Based on FICO standards, a credit score above 670 is considered good. FICO assigns ratings per the table below.

Borrowers with good, very good, and exceptional scores tend to be eligible for more financial products, including credit cards and loans, and receive more favorable interest rates than those with credit scores in the poor or fair categories.

What impacts your FICO credit score?

Five key factors impact your credit score, each based on your credit report and weighted according to importance.

Payment history (35%)

Payment history is the single largest factor that makes up your credit score, so making payments on time can help change your score for the better. A history of missed or late payments could result in a lower score. Many financial institutions report your payments, whether on time or late, to the three credit reporting bureaus. It’s possible that phone companies, utilities, landlords, and others will also report to the bureaus.

Credit utilization (30%)

Credit utilization is a measure of how much credit you’re using compared to the overall credit that’s available to you. For example, suppose you have one credit card with a credit limit of $5,000 and a balance of $1,000. In that case, your credit utilization is 20% (1,000/5,000). Keeping credit utilization under 30% is typically viewed positively by lenders.

Length of credit history (15%)

How long you’ve been managing credit is of interest to potential lenders. A longer credit history typically results in a higher score. If you’re brand new to credit, it can take about six months to build your credit score from scratch.

Mix of credit (10%)

Credit mix refers to the different types of credit you use. It includes revolving credit, like credit cards and lines of credit, and installment loans, like mortgages, auto loans, or personal loans. Effectively managing several types of credit can show you’re a responsible borrower and boost your credit score.

Pending applications (10%)

Also referred to as “new credit,” your pending applications can reflect how risky you are as a borrower. Submitting many applications for credit in a short period could make you appear riskier than someone who only applies for credit once.

What can keep you within a good credit score range?

The following steps can help you improve your credit score and give yourself the best chance of maintaining a good one:

Make timely debt payments in full

Since payment history is the largest factor in your score, paying debt on time and in full may help boost your score.

Diversify your credit mix

Having a mix of loans and credit can signify your ability to manage different types of debt responsibly. However, it’s worth noting that you shouldn’t take out a loan you don’t need just to boost your score.

Reduce your credit utilization

There are two ways you can reduce your credit utilization. You can apply for more credit or request a credit limit increase to give you access to more overall available credit. Alternatively, you can decrease your current balance by paying off some of your debt. Either path can help your credit score by lowering your credit use compared to your available credit.

Be mindful of multiple applications for financial products

An effective way to manage your use of financial products is to only apply for the credit you need. If you’re shopping around for a financial product, like a personal loan, you may want to get quotes from multiple lenders. Many lenders offer prequalification, which only involves a soft pull and won’t affect your credit score. But if you go through with the application, you’ll want to ensure your applications are no more than two weeks apart. Potential lenders will issue a hard inquiry to check your credit, which can negatively impact your score, and inquiries within a two-week window for the same financial product may be counted as a single credit inquiry and, therefore, be less damaging to your score.

Monitor activity through credit bureaus

You may have credit reports at each of the three major credit reporting bureaus: Experian, Equifax, and TransUnion. To ensure the most accurate information on your credit report, you can review each report once per year. Look for errors like credit accounts you didn’t open or payments marked as late even though you paid on time. If you find an issue, open a dispute with the creditor and the credit reporting bureau, as resolving an error could help quickly boost your credit score.

How can staying within a good credit score range benefit you?

When you have a good credit score, financial opportunities tend to be more abundant, especially when it comes to accessing different types of financial products. When you have a good score, you might notice lenders offering:

Preferred interest rates and repayment terms

Lenders typically offer better interest rates to the most highly qualified borrowers, so the better your credit score, the better rate you may receive. Depending on the size of your loan, your credit score could end up saving you lots of money with a lower interest rate. You may also be eligible for better repayment terms or a period of time at zero interest.

Unsecured credit cards or personal loans

It’s generally easier to qualify for a secured loan since the lender has collateral, like your car or home, which they can sell if you fail to repay the debt. However, a great credit score may qualify you for low-rate unsecured credit cards or personal loans without collateral requirements.

New credit opportunities

When you have a good credit score, you may receive offers for new credit cards, loans, balance transfers, and more. Lenders are more likely to want to give you access to new credit opportunities because they believe you’ll be a borrower who repays their debt responsibly.

Oportun: Affordable lending options designed with you in mind

Now that you understand what a good credit score is, you can learn about how Oportun may be able to help you if you’re looking for affordable credit options. Visit our homepage to learn about:

• Personal loans
• Secured personal loans
• Savings
• And more!

Sources

myFICO. What is a FICO® Score?

The post What is a good credit score? appeared first on Oportun.

If you’re shopping for a new loan or credit card, you’ve probably come across the term prequalification. Many banks, credit unions, and online lenders use prequalification offers to encourage you to apply for their loan products. But what exactly is prequalification? Can it affect your credit score? In this article we’ll look at how prequalification works and what it means for you.

Here’s what we’re going to cover:

• What is prequalification?
• Does prequalification affect your credit score?
• How to prequalify for a personal loan or a credit card
• Oportun: Affordable lending options designed with you in mind

What is prequalification?

Prequalification is a credit estimate made by a lender based on your financial situation. To determine your eligibility for a loan or credit card, the lender will typically make a soft credit inquiry. The information they receive allows them to estimate loan amounts and interest rates for you. They can then tell you what loans or credit cards you are likely to qualify for.

Here are a few things to keep in mind about prequalification.

Prequalifying is not the same as applying for credit

Even if you’ve been told you prequalify for a loan or credit card, you’ll still need to submit a formal application.

Preapproval is different as well

Prequalification does not require documentation, where preapproval does. Prequalification is not a commitment on behalf of the borrower nor the lender. Preapproval is a conditional commitment by the lender.

Prequalification is not a guarantee of approval

If you prequalify for a loan, there’s a good chance you will be approved for it if the information you provide in the prequalification process is accurate. But you won’t know for certain until you submit an application and get an answer from the lender.

Prequalification helps you rule out products you’re not eligible for

If your prequalification request is turned down, it means you probably won’t be able to get that credit card or loan. This is a good way to narrow down your choices.

Prequalifying for a loan or credit card doesn’t necessarily mean it’s a good offer

Prequalifying for a loan or credit card doesn’t commit you to anything. You’ll still want to look closely at the product before deciding whether you want to apply for it. Some things to consider include the interest rate, the size of the loan credit line, how it’s repaid and whether you can afford the payments, what fees are involved, and others.

Does prequalification affect your credit score?

Requesting prequalification won’t hurt your credit score. When lenders look at your financial information in this process, they do a soft credit check. This lets them see your credit history without affecting your credit.

However, when you actually apply for a loan or credit card, the lender will conduct a hard credit inquiry. This is a complete review of your credit history to help lenders better understand your ability to pay back what you borrow.

Hard inquiries can temporarily knock a few points off your credit score, and multiple inquiries can cause a bigger drop. This is where prequalification can help you: You can limit your applications to only those loans or credit cards you prequalify for. Fewer applications will have less impact on your credit score.

How to prequalify for a personal loan or a credit card

The process and requirements for prequalification differ from one lender to another. Some offer prequalification to anyone interested. Some lenders may offer it to promote new products. Others may allow only their existing customers to prequalify. You can visit a lender’s website or call them to learn more.

With many lenders, you can request prequalification online. Filling out the form may take only a few minutes, and you can often find out right away if you’re prequalified.

Oportun: Affordable lending options designed with you in mind

Now that you understand prequalification, you can learn about how Oportun may be able to help you if you’re looking for affordable credit options. Visit our homepage to learn about:

• Personal loans
• Secured personal loans
• Savings
• And more!

Sources

Experian. What is prequalification?

Investopedia. Pre-qualification: What it means, special considerations

Forbes Advisor. How to pre-qualify for a personal loan

The post Does prequalification affect my credit score? appeared first on Oportun.

If you own a vehicle, a car title loan is one way to improve your chances of loan approval and borrowing money quickly. Your car becomes the collateral that backs your loan. But these short-term loans can come with high interest rates. A secured personal loan is one alternative to help with sudden expenses like emergency medical bills or urgent home repairs. You still use your car (or other collateral) to back the loan, but the repayment terms are often easier or simpler to meet than with a car title loan.

Here’s what we’re going to cover:

• What is a car title loan?
• How do car title loans work?
• What is a secured personal loan?
• Comparing car title loans to secured personal loans
• Other options for quick loans
• Oportun: Affordable lending options designed with you in mind

What is a car title loan?

A car title loan is typically a short-term loan with a high interest rate, and is often available to people with bad credit history. A car title loan can help you get money quickly. The loan funds can be used for nearly any personal need. To qualify for the loan, you must own your car outright (no car payments) and use your vehicle as collateral to secure the loan. If you don’t make your loan payments, the lender can repossess your car to recoup the value of their lost loan funds.

How do car title loans work?

To apply for a car title loan, you provide information like your driver’s license and proof of car ownership. If your loan is approved, you trade your car title for the loan funds, and the lender returns the car title when the loan is paid off.

It may be easier to qualify for a loan when you use your car title to secure the loan, since the lender has the legal right to take ownership of your car and sell it, if you default on your payments. This helps lenders approve loans that otherwise may be too risky, for example, to applicants with no or low credit scores. In that way, even if you do not pay the loan back, the lender can recover the funds lent to you.

But car title loans can come with high interest rates and fees. If the loan lists a “monthly finance fee” of 25 percent, for example, this translates into a 300 percent APR (annual percentage rate), or the amount you owe for each year of a loan.

You have only a short time to repay a car title loan, usually 15 to 30 days. If you do not repay your loan on time, you risk owing more and more money in interest. This can put you into a cycle of increasing debt that is difficult to break. Worse still, you may lose your car, leaving you with no vehicle.

Depending on where you live, you may not be able to get a car title loan at all. In many states, car title loans are either banned or heavily restricted because of the danger they pose to consumers. Nationwide, 20 percent of title loans result in repossession of the vehicle. In California, that number jumps to a whopping 33 percent. Even if your car is not repossessed, the high APR on a car title loan means you may end up owing much more money in interest than the original amount you borrowed.

What is a secured personal loan?

A secured personal loan is a short- or long-term loan, typically with interest rates lower than a car title loan. A secured personal loan is another way to access funds by putting up collateral. The collateral for a secured personal loan could be your vehicle, but it could also be a bank account or other personal property.

A secured personal loan can help you get money quickly, and the loan funds can be used for nearly any personal need. If you don’t make your loan payments, the lender can repossess your collateral to recoup the value of their lost loan funds.

Compared to unsecured loans (no collateral required), secured personal loans may be easier to get or may come with more favorable repayment terms. The collateral helps lenders approve loans that otherwise may be too risky, for example, at larger loan amounts or lower interest rates. The collateral helps the lender know the borrower is motivated to repay the loan, and the lender can use the collateral to recover the funds lent to you even if you don’t pay it back.

Comparing car title loans to secured personal loans

Compared to car title loans, secured personal loans typically have lower interest rates, lower payment sizes, and give you more time and flexibility (like no prepayment penalties) to repay what you borrow. These terms can help make repayment easier than the terms of a car title loan, which can lower the chance of the borrower defaulting and the lender repossessing the collateral. Further, many people find that the fixed payment amounts help them with budgeting.

With a secured personal loan, you may qualify for a higher loan amount than you could get with either a car title loan or an unsecured personal loan.

Here’s a simple chart outlining the basic differences between these two types of loans. Loans vary from lender to lender, so you’ll want to look carefully at all the conditions before signing any loan agreement.

Other options for quick loans

What if you prefer not to offer any collateral for a loan? You still have several more alternatives for getting cash in a hurry. These include:

• Unsecured personal loans (no collateral required)
• Loans from family or friends
• Cash advances against credit cards
• Borrowing from lines of credit

Each of these options may come with its own drawbacks. Whatever kind of loan you choose, it’s important to be sure you can pay back the money you borrow.

Oportun: Affordable lending options designed with you in mind

Now that you understand the difference between car title loans and secured personal loans, you may want to explore Oportun’s affordable lending options. Visit our homepage to learn about:

• Personal loans
• Secured personal loans
• Savings
• And more!

Sources

Experian. Title loan vs. secured loan

Bankrate. How do title loans work, and are they ever worth the risk?

Highway Title Loans. Car title loan laws and regulations by state

Consumer Financial Protection Bureau. CFPB finds one-in-five auto title loan borrowers have vehicle seized for failing to repay debt

Center for Responsible Lending. Debt trap drives the fee drain

The post Car title loan vs. secured personal loan appeared first on Oportun.

If you’d like to borrow money to cover a home renovation, consolidate debt, or meet other financial needs, personal loans and home equity loans are two good options. Either one can help you meet your goals, but the right financial product for you will depend on your situation. In this article, we’ll compare personal loans with home equity loans to help you choose.

Here’s what we’re going to cover:

• What is a personal loan?
• What is a home equity loan?
• Personal loans vs. home equity loans
• When to get a personal loan
• When to get a home equity loan
• Oportun: Affordable lending options designed with you in mind

What is a personal loan?

Personal loans are available through many banks, credit unions, and online lenders. You receive a lump sum of money and then pay it back, with interest and fees, over a fixed period of time. Personal loans can be used to cover a wide variety of expenses.

What is a home equity loan?

Home equity loans, sometimes called second mortgages, allow you to borrow against the value of your home. Like personal loans, they provide you with a lump sum of money that you pay back in regular installments. You may be able to borrow as much as 85 percent of your home’s equity.

Personal loans vs. home equity loans

Here’s a closer look at the differences between personal loans and home equity loans.

Repayment term

Personal loans usually come with repayment terms ranging from one to seven years. Terms for home equity loans can be as long as 30 years.

Loan amount

With a personal loan, you may be able to borrow from a few hundred dollars to several thousand dollars. With a home equity loan, you can often borrow up to 85 percent of your home’s value, minus what you owe on your mortgage.

Application process

Many lenders allow you to apply online for personal loans. The process is usually quick and easy. The application process for a home equity loan is more involved and may take up to two months.

Collateral

Most personal loans are unsecured, meaning you don’t have to provide collateral. With a home equity loan, your home is the collateral. This means you risk losing your home if you can’t pay back the loan.

Fees

Personal loans typically charge origination fees and late fees. Home equity loans usually include origination fees, late fees, closing costs, and prepayment penalties.

When to get a personal loan

Here are some situations where a personal loan may be your best choice.

Your expenses are smaller

If you need to cover a car repair or another expense that will cost a few thousand dollars, a personal loan can be ideal.

You’re looking for quick funding

If you prefer to get money quickly, consider a personal loan. The application and approval processes are often fast and simple.

You don’t own a home or don’t want to risk losing your home

You don’t need to own a home to take out a personal loan. If you’re a homeowner but don’t want to risk losing your property, a personal loan may be a better option than a home equity loan.

When to get a home equity loan

Here are some situations where a home equity loan may be a better choice.

You want to borrow more money

If you’re looking to borrow a large sum of money and have built up a lot of equity in your home, you may want to consider a home equity loan.

You’re looking for a lower interest rate

Interest rates on home equity loans are generally much lower than those on personal loans. That’s because there is less risk to the lender when your home is used as security.

You’re funding a home improvement project

When you use a home equity loan to pay for home renovations, you may be able to deduct the interest you pay from your taxes. This can reduce your tax bill.

Oportun: Affordable lending options designed with you in mind

Now that you understand the basic differences between personal loans and home equity loans, you may want to explore Oportun’s affordable credit options. Visit our homepage to learn about:

• Personal loans
• Credit cards
• Secured personal loans
• And more!

Sources

Bankrate. Personal loans vs. home equity loans: Which is right for you?

Investopedia. How long does it take to get a home equity loan?

NerdWallet. Personal loan vs. home equity loan: Which is best?

Investopedia. Home equity loan vs. personal loan: What’s the difference?

The post Personal loan vs. home equity loan: Which is right for me? appeared first on Oportun.

Owing a lot of money on credit cards and other bills can be stressful. Fortunately, there are ways to manage your debt and make it easier to repay. One option is to consolidate your debt with a personal loan. This article will explain how the process works and help you decide if you want to try it.

Here’s what we’re going to cover:

• How do I use a personal loan to pay off debt?
• Benefits of paying off debt with a personal loan
• Drawbacks of paying off debt with a personal loan
• Oportun: Affordable lending options designed with you in mind

How do I use a personal loan to pay off debt?

Personal loans can be used for most personal needs, including paying off other debt. This is called debt consolidation and people typically do it to simplify their finances or save money.

How does it work? First, you look for a loan with lower interest and fees than what you currently pay on your debts. If you can get approved for a loan like this, you then use the loan funds to pay off your credit card bills, payday loans, and other outstanding debts. If your personal loan is large enough to pay off all your other debts, you’ll only have to make payment to a single lender and follow one set of repayment terms.

Consolidating your debt with a personal loan doesn’t make your debt disappear. You still have to pay back the money you borrowed. What you are doing is combining all your existing debts into one account under one lender, to make repayment simpler.

Benefits of paying off debt with a personal loan

The big advantage to consolidating your debt through a personal loan is that you might end up owing less money in interest and fees. This could help you get out of debt faster.

You may also find that it’s easier to follow one repayment schedule rather than several. And if you take out a loan with a fixed interest rate, the payment amount will be the same each time. You know exactly how much you have to budget for.

Further, making your loan payments on time and in full could also help improve your credit score.

Drawbacks of paying off debt with a personal loan

It may be difficult to obtain a high-quality personal loan if you carry too much debt. Many lenders look at a debt-to-income ratio when determining whether or not to make the loan to an applicant. Without realizing that the loan purpose is to pay off other debts, they may interpret your loan application as adding more debt to an already strained budget. It is possible that you may not be approved for a loan size large enough to cover all your other debts, or you may even be denied based on the amount of debt you carry.

Before you decide to pay off debt with a personal loan, look carefully at the interest rates, fees, and repayment structure. Debt consolidation through a personal loan makes sense if you can save money over the life of the loan, or if simplifying repayment means better peace of mind or that you’ll be more likely to make payments on time.

There are several risks if you don’t keep up with your loan payments. Missing a payment can lower your credit score. You could also end up owing late fees or penalties. And if you’ve put up collateral for a secured loan, you risk losing that property.

Here’s one more thing to consider. If you don’t already have one, try setting a budget to help you manage your income and expenses. If you follow it, you could end up owing less and having more money in the bank.

Oportun: Affordable lending options designed with you in mind

Now that you understand how to use a personal loan to consolidate debt, you can learn about how Oportun may be able to help you if you’re looking for affordable credit options. Visit our homepage to learn about:

• Personal loans
• Secured personal loans
• Saving
• And more!

Sources

Experian. Should I get a personal loan to pay off my credit card? 

Forbes Advisor. Using a personal loan to pay off credit card debt 

Bankrate. Should you get a personal loan to pay off credit card debt? 

The post Using a personal loan to pay off debt appeared first on Oportun.

Is a personal loan or a credit card the better choice for your financial needs? Both options allow you to spend now and pay later. Both can be valuable tools when handled responsibly. In this article we’ll look at how personal loans and credit cards work, and when it makes sense to use each one.

Here’s what we’re going to cover:

• What is a personal loan?
• What is a credit card?
• When to use a personal loan
• When to use a credit card
• Best practices for using credit, no matter the financial product
• Oportun: Affordable lending options designed with you in mind

What is a personal loan?

A personal loan is a sum of money you borrow all at once and then pay back, often in equal payments, over a set period of time. When paid back in installments, you’ll know exactly what you owe each month to assist with budgeting.

A personal loan can be secured, meaning it requires collateral to pay back the loan, or unsecured, meaning collateral is not required. Generally, secured loans have a lower interest rate than unsecured loans because the lender is more confident about being repaid or being able to recover unpaid funds.

What is a credit card?

A credit card provides a revolving line of credit. The money you spend on your credit card is borrowed, and you can borrow any amount up to your credit limit. If you’ve reached your limit, you cannot continue using the card until you’ve paid down the balance.

Credit cards are most commonly unsecured, though some specialized secured cards exist. Interest rates on credit cards can be high, and the interest can add up quickly if you make only the minimum payment each month. On the flip side, you can avoid paying interest altogether if you pay off your full balance every pay period.

Many credit cards offer rewards such as cash back or travel points.

When to use a personal loan

To decide between a personal loan and a credit card, consider your current finances, the size of the expense, and how soon you can repay what you borrow.

Here are some situations where a personal loan might be a better choice.

Financing home renovations

A personal loan can provide the large sum you need up front for home improvement projects. Get one with a fixed interest rate and set repayment period to help with budgeting for these major expenses.

Paying medical bills

If you’re facing high medical costs, a personal loan could bring you peace of mind. It allows you to pay off your hospital and doctor bills immediately so that you can focus on what’s most important—getting well.

Consolidating debt

Replacing several high-interest debts with a personal loan at a lower interest rate can simplify your finances and help you save money.

Covering major life events

Big events such as weddings or moving to a new home often come with high price tags. A personal loan lets you spread the cost over a longer period of time into manageable payment sizes.

When to use a credit card

Here are some situations where a credit card could be a better option.

Covering everyday expenses

A credit card can be convenient when you’re paying for everyday expenses like groceries and gas. Credit cards give you an easy way to track your spending. The best practice is to pay off your credit card bill so you are only paying face-value for these items, and not paying interest on them.

Booking travel

Many credit cards offer benefits such as travel insurance, airline miles, and hotel points. Using a credit card for travel bookings could earn you perks to enhance these experiences, or protect you in case of unexpected cancellations or delays.

Paying bills automatically

You can set up many bills to be automatically charged to your credit card when they’re due. This way your recurring bills are always paid on time and you don’t have to worry about how much cash is in your bank account until your credit card bill is due.

Shopping online

Online shopping is another area where a credit card can be a great convenience. Be sure to look for websites with a small padlock next to the URL. This means your personal information will be encrypted for better protection.

Best practices for using credit

You work hard for your money, so you’ll want to get the most value from your credit choices. Here are some suggestions.

Make a budget and stick to it

Setting up a realistic budget can help you meet all your expenses and still plan for the future. Budgeting is a smart practice no matter what your income.

Keep spending within your ability to repay

Remember that you have to pay back what you borrow through a loan or credit card, often with interest. Avoid the temptation to buy things you don’t need.

Always make loan payments on time and in full

This is the best way to keep your credit score healthy and show lenders that you know how to handle credit responsibly. If you decide to pay off a personal loan early, check to see that you won’t be charged a penalty for doing so.

Pay off your credit card balance each month

With a credit card, you’ll want to pay off your entire balance each month so that you don’t owe interest. Carrying a credit card balance from one month to the next results in ongoing interest charges that add up quickly and can be difficult to pay back.

Use no more than 30 percent of your credit limit

Using less than 30 percent of your available credit can help build your credit score. If your credit card limit is $2,000, for example, try to keep your spending below $600.

Oportun: Affordable lending options designed with you in mind

Personal loans and credit cards are two financial tools that can help you cover expenses. Whichever option you choose, look closely at the conditions and be sure you understand what you’re agreeing to.

At Oportun, our lending products are designed with you in mind. Visit our homepage to learn about:

• Personal loans
• Secured personal loans
• Saving
• And more!

Sources

NerdWallet. Personal loan vs. credit card: What’s the difference?

Bankrate. Personal loans vs. credit cards: Which is better for you?

Forbes Advisor. Personal loan vs. credit card: Which is best for you?

myFICO. What is Amounts Owned?

The post Personal loan vs. credit card: Which should I use? appeared first on Oportun.

Unexpected expenses like car repairs or medical bills can occur at any time. If you don’t have enough cash on hand to cover these costs, you may want to consider taking out a short-term personal loan. These loans are one way to pay bills in an emergency. In this article we’ll look at the advantages and drawbacks of short-term personal loans, and how you can get one.

Here’s what we’re going to cover:

• How short-term personal loans work
• Benefits of short-term personal loans
• Drawbacks of short-term personal loans
• How to compare short-term personal loans
• How to get a short-term personal loan
• Oportun: Affordable lending options designed with you in mind

How short-term personal loans work

Short-term personal loans are available through many banks, credit unions, and online lenders. You borrow a sum of money and agree to pay it back, with interest and fees, over a period ranging from a few months to a year. This can be a quick solution when unexpected costs arise.

Benefits of short-term personal loans

What are the major benefits of short-term personal loans?

Online application

Many lenders allow you to apply for short-term personal loans online. Typically, the process takes only a few minutes. You’ll be asked to confirm your identity with a government-issued ID and provide some basic information such as your bank account number and proof of employment.

Fast funding

Once you’re approved for a short-term personal loan, you can expect to receive the funds quickly. Some lenders will issue your money within 24 hours; others may take up to a few days.

Easy approval

You may be able to qualify for a short-term personal loan even if you have a low credit score or no credit at all. Taking out a short-term loan is one way to start building your credit.

Various uses

A short-term personal loan can come in handy for a variety of urgent needs such as car repairs, medical bills, and home repairs. You can also use the funds to pay for everyday expenses like groceries and gas.

Drawbacks of short-term personal loans

Although short-term personal loans can help you in an emergency situation, they can also be costly. Some lenders charge interest as high as 400 percent on short-term loans. You may also owe late fees and penalties if you don’t make payments on time.

Before taking out any loan, you need to be sure you can pay back the money you borrow, as well as the fees and interest. Look closely at the conditions of a loan when making your decision.

How to compare short-term personal loans

Here are some things to consider when comparing short-term personal loans.

Loan amount

How much money will you need to cover expenses? You may be able to borrow from a few hundred dollars up to several thousand dollars, depending on the lender.

Repayment term

Repayment periods for short-term personal loans typically range from several months to a year. A shorter term may allow you to pay less in interest, while a longer term could make your individual payments lower.

Annual percentage rate (APR)

A loan’s annual percentage rate (APR) tells you the yearly cost of borrowing money. The lower the APR, the less you’ll spend on a short-term personal loan.

Approval time

If you want to receive funds quickly, look for a lender who offers instant or same-day approvals.

Online reviews

Online reviews are a good way to compare lenders. The more positive reviews a lender has, the better your experience is likely to be.

How to get a short-term personal loan

Follow these simple steps to get a short-term personal loan.

1. Check your credit score.
   Visit a website like Experian.com that allows you to check your credit score for free. Your bank or credit card issuer may also be able to give you this information. By knowing your credit score, you’ll have a better idea which short-term loans you can qualify for.
2. Shop around and compare options.
   Explore loan offers from several banks, credit unions, and online lenders to see what’s available. Some lenders allow you to prequalify, which can make it easier to compare costs.
3. Apply for a loan.
   Once you’ve chosen a short-term personal loan, fill out the application online or in person. You may need to submit documents like pay stubs and a government-issued ID.
4. Wait for approval.
   Many lenders will let you know the same day whether you’ve been approved for a short-term personal loan. If you’re approved and you agree to the loan, you’ll receive the funds, usually by direct deposit to your bank account.

Oportun: Affordable lending options designed with you in mind

Now that you understand how short-term personal loans work, you may want to explore Oportun’s affordable credit options. Visit our homepage to learn about:

• Personal loans
• Credit cards
• Secured personal loans
• And more!

Sources

Bankrate. What you need to know about short-term loans

Experian. What is a short-term personal loan?

Forbes. Best short-term personal loans of 2024

NerdWallet. How to pre-qualify for a personal loan

The post What is a short-term personal loan? appeared first on Oportun.