Life doesn’t always go the way we expect and sometimes we may need a sudden chunk of change to manage until the next month. Or perhaps we have a big event like a wedding or an awesome vacation planned that could really use the extra boost. Maybe some of our home appliances are on their last breath and it’s time to upgrade. Whether we like it or not, we need money to achieve a lot of our life goals. Usually we can make do with our monthly paychecks, but sometimes a little extra cash flow will help us reach our spending goals. This is where personal loans can be helpful.
A personal loan is often borrowed to meet emergency personal needs, but can also be used for many other purposes. Personal loans are taken from banks or organizations, which lend loans after making a clear agreement about when to make repayments, including specific payment due dates and the number of installments.
There a variety of personal loans to fit many unique needs. Usually personal loans are unsecured short-term loans. These loans charge a monthly fee and interest rate, which vary and depend on multiple factors, including your credit score. Personal loans offer flexibility and let you use the money for whatever purpose you choose, whether it’s home improvements, debt consolidation or purchasing big ticket items. Sometimes you might be asked what you intend to use the money for when you apply for the loan, which may factor into the lender’s decision. As long as you plan to use the money for a legitimate purpose, you should be fine. If lenders have specific rules about what the loan can be used for, then you should be able to read about that before applying.
How much can I borrow?
Unsecured personal loans are usually offered from as little as $1000, to up to $50,000. Loans vary from vendor to vendor, in regard to interest rates and fees, so it’s important to read the fine print before taking a loan. Some loans only have monthly fees, whereas others also include establishment fees and annual fees. Interest rates also vary greatly, some being fixed, while others are variable.
One thing to be aware of is that most personal loans require the borrower to have a good credit score, 680 or higher, to be approved. Borrowers with good credit are usually approved quickly without having to wait for days. However, there are also many loan options for low-credit borrowers. (link)
Before you apply for a personal loan, make sure you know your credit score. You can check your credit score from websites online that give credit reports. Most people make the mistake of applying for personal loans without a clear picture of their loan status. Find our your credit score from one of the three major credit bureaus: Equifax, Experian, or TransUnion. If you have bad credit, make sure you take steps to improve your credit score.
How do I pay back my loan?
Unsecured personal loans are usually paid back between one and seven years. The amount you pay in each installment is a combination of the principal amount borrowed, in addition to interest that has been accumulated, according to the terms of the agreement. You will be required to make the payment every month to the lending institution or bank that you borrowed money from. The amount that you receive will be approved according to your credit score or and to the lender’s assessment of your capacity to pay back the loan.
Another detail to pay attention to is if there are any repayment restrictions. Some lenders allow borrowers to make extra payments to pay back their loans earlier; whereas other loans may not allow this, or charge penalties to do so.
What is an unsecured loan?
An unsecured loan is a loan that is given without any collateral. In other words, it is supported solely by the borrower’s creditworthiness. Other types of loans use things such as property as collateral for the loan, so borrowers usually must have high credit ratings to be approved for many unsecured loans. Unsecured loans are also referred to as signature loans or personal loans.
Because the lenders take more risk, unsecured personal loans usually have higher interest rates. This way if a borrower fails to pay back their loan, at least the lending institution will have received more interest from the loan.
Things to consider
There are so many loans out there, so it’s good to know what you’re looking for and what factors are important to consider.
You should always pay attention to the interest rate. Make sure you find a loan with a competitive interest rate and check whether it has a fixed or variable interest rate.
It’s also important you check what the minimum and maximum loan amounts you can borrow from the lender are. Some loans are only for $1,000, whereas others can go up to $50,000. Make sure the amount you want to borrow is covered by the loan.
Most loans also have fees and charges connected to the loan. Sometimes you will be charged upfront, and other times there are ongoing fees. The APR will have an overview of the cost, including any fees. Make sure you are aware of fees and charges because they can add up to a lot.
You should also check if you loan has extra features that are important to you. This can include something like online access to managing your loan, or reminder emails about due dates.
Taking out a personal loan is not a decision to take lightly. Adding more debt to your personal finances can become a burden. However, it doesn’t need to be. If you can responsibly borrow a loan and know you will have future capabilities to pay it back, a personal loan may be a good choice for you. The process is simple and borrowing a bit of extra money can make your life easier.
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