Rental prices are on the rise, making it difficult to find a place to call home. One option is to take out a personal loan for rent. First, research the different types of personal loans out there and determine what you can afford to pay. Next, reach out to local banks, private lenders and credit unions to discuss your options.
Tip
Taking out a personal loan for rent can be expensive. Generally, secured loans – especially those offered by credit unions – have the lowest interest rates and fees.
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Research and Understand Your Options
The average monthly apartment rent increased by 7.5 percent between 2019 and 2021, reports USA Today. Most tenants can expect to pay around $1,527 per month, depending on their location. As you probably know, rental prices can vary by thousands of dollars from one city or state to the next. Memphis residents, for instance, pay about $1,100 in rent per month. The median rental price in San Jose or San Francisco, by comparison, is over $2,700.
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Given these figures, it's not surprising that more and more people are taking out loans to move into an apartment. The security deposit alone can drain your budget. While it's true that personal loans carry high interest rates, you might not have other options. Before taking this step, try to decide which type of personal loan best suits your needs.
A secured personal loan, for example, requires some type of collateral, such as precious metals, cars, bonds or stocks. Unsecured loans, on the other hand, don't require any collateral. As you would expect, secured loans carry lower interest rates than unsecured loans because they pose less risk to lenders. Additionally, they are often easier to obtain and have more flexible repayment terms, notes Benchmark Federal Credit Union.
Another option is to apply for an emergency loan, but you may not be able to borrow more than $1,000. Emergency loans may include title loans, payday loans, credit card advances or small unsecured personal loans. Just make sure you're aware of the costs involved. In general, emergency loans charge high interest rates and hefty penalty fees. The average payday loan has an annual interest rate of 391 percent, warns InCharge Debt Solutions.
Apply for a Personal Loan
Once you have decided on a type of loan, reach out to local banks and other financial institutions. Ask about interest rates and fees, repayment terms, funding time and credit score requirements. Secured personal loans are generally easier to obtain than unsecured loans. The downside is that you risk losing the collateral if you fail to pay on time.
Contact private lenders and credit unions, too. The latter might actually have lower interest rates and fees than most banks. Credit unions operate as nonprofit organizations, while banks are for-profit, explains Forbes. Moreover, credit unions put their members' needs first, offering better terms than banks and private lenders.
Depending on the lender, you may apply for a personal loan online or in person. Make sure you have your ID card, passport, driver's license or certificate of citizenship at hand. Most lenders will also request pay stubs, bank statements, tax returns and other documents. If you have a rental agreement, bring it with you. Be prepared to answer a couple of questions, such as how you plan to use the funds.
Note that taking a personal loan for rent can be costly. If possible, ask your family and friends for money or take a second job before reaching out to lenders. You could also try to share the apartment with a friend, join crowdfunding platforms or sell stuff you no longer need or use.