You have likely seen ads on television, social media, or even sites like this one for a personal loan. Many lenders offer hundreds of dollars that they say you will get in your bank account within 24 hours. You might think it sounds too good to be true but in reality, these offers are real and they can help you in a tight spot with unexpected expenses.
A personal loan is exactly what it sounds like- a sum of money lent to an individual for any purpose. You can use the loan for anything, from a vacation to debt consolidation, home repairs, or even medical bills. Personal loans usually have a fixed interest rate and a set repayment schedule. This means that you will know exactly how much you need to pay back each month and you will not have to worry about your interest rate increases.
Why use Personal Loans?
One of the best things about personal loans is that you can use them for just about anything. You do not need to provide a reason for wanting the loan, which is why they are also known as “unsecured” loans. Personal loans do not need backing by collateral. Therefore, the lender does not have anything to repossess if you stop making your loan payments.
There are several reasons why someone might need a personal loan. Here are scenarios when a personal loan would be a welcome idea for you:
When buying a new home
There are many reasons why buying a new home may not be possible right now, but one of them is not lack of funds. If you are experiencing difficulty making the necessary down payment, a personal loan can help you finance this purchase.
To plan for an outing experience
If you are looking for a way to make an unforgettable vacation, personal loans can help finance big-ticket items such as weddings or college graduation parties. The sky is the limit when it comes to what they can pay for.
For Debt consolidation
If you have several high-interest credit cards, you can use a personal loan to consolidate that debt into one lower-interest monthly payment. This will save you money in the end and could help improve your credit score.
To meet Emergency Expenses
If you ever find yourself in a financial bind, get a personal loan to pay for items such as medical bills or legal expenses. This type of loan is a quick solution to your finances that will leave you in good standing.
Planning for the future
With special features like college funding, improving your home, and more, a personal loan is often an excellent way to plan for the future. Many people choose to further their education later in life, even if they already have a college degree.
Student loans require repayment after graduation and that may be too much responsibility to take on when you have a family. Personal loans do not have this provision and will not be in your life forever.
When making a large purchase
Making a large purchase such as a car may work well with a personal loan. A new car is one of the most expensive items that people purchase in their lifetime. If you need some extra capital to get behind the wheel of your dreams, then a personal loan can be used to help pay for it.
How does a personal loan work?
Personal loans are unsecured, which means they do not require any collateral. This type of loan depends on your credit score and other factors like income and debt-to-income ratio. The interest rate will be higher than a secured loan, but it still may be a better option than using a credit card.
When you take out a personal loan, the lender will give you a set amount of money that you can use for any purpose you choose. You will then have a fixed period of time to pay it back, with interest. The great thing about personal loans is that you can use them for whatever need you to have.
As discussed here, you may want to use a personal loan to consolidate your debt, make a large purchase, or cover an unexpected expense. However, keep in mind these few things when looking for a personal loan.
1. Credit score
You will need a good credit score to get approval for a personal loan, so make sure you are staying on top of your bills and credit report. You can check your score for free to plan yourself before borrowing.
2. Read the fine print
When comparing offers, make sure to read the fine print. There may be an annual fee or other hidden fees tacked onto your loan. It is also important to note how long the repayment period is; shorter repayment periods generally have higher interest rates.
3. Look for a low-interest rate
When you are shopping around, try to find a loan with a lower interest rate. This will save you money in the long run and keep your monthly payments more manageable.
Personal loan application requirements
To apply for a personal loan, you must meet certain requirements. Here are some of the general requirements of a personal loan:
- Borrowers must be at least 18 years old.
- Applicants must have a verifiable source of income or have access to regular income through other means.
- You may need to provide a co-signer if their credit score is below a certain level.
- Make formal loan applications. Even though many lenders make the application process easy, you still need to go through an official application process to get approval.
Personal loans are the kind of financial solutions you need during emergencies. However, make sure that this is the only available option to you because of the high-interest rates. This type of loan is slightly different from conventional ones because it is easily accessible. Most importantly, the application is quick and approval is made in a short time if you meet the lender’s requirements.