Personal loans are a type of loan primarily used to purchase a home or a car. They can also be used to pay off credit cards, medical bills, or mortgages. A personal loan is a loan given to a borrower by a lender. The lender will typically ask for some security or collateral. Personal loans are generally unsecured, meaning there is no collateral, such as a home, car, or another asset, that is put up to secure repayment.
A personal loan can be a great tool, but you’ll still want to research and compare providers before committing.
Here are Five Things You Should Know:
Two Types of Personal Loans:
- Secured loan – Secured loans aren’t for everyone, but they can be helpful in certain situations. For example, you can use one to consolidate debt, pay off a student loan, or fund a major investment. Secured loans should, in many ways, be thought of as short-term personal loans since they generally have short repayment terms and can be repaid over a few months.
- Unsecured loans – An unsecured loan is a loan that does not require collateral. The lender does not ask for an asset as collateral and instead relies on the borrower’s personal credit to qualify.
How do personal loans work?
A personal loan is when you get a financial loan from a bank or other lender. Money for personal loans is based on what you can afford to pay back, not your credit. Personal loans can be used for a variety of things, from paying off credit card bills to paying tuition to home improvement. Personal loans are considered unsecured debt, meaning that unlike your car loan or your mortgage, you are not required to pay any interest on personal loans.
Where you can get a personal loan
Getting a loan can be stressful, especially if you’re trying to obtain your first personal loan or are concerned about your credit. With so many banks and lenders offering loans, it can be easy to feel overwhelmed and not know where to begin. Fortunately, there are websites where you can quickly compare the rates and terms for personal loans from various financial institutions. These sites, such as SmartAsset and MagnifyMoney, make the process of applying for a personal loan not only easy but quicker and easier.
Personal loans vs. other lending options
Personal loans can be a helpful financial tool when used properly, but they have many disadvantages as well. Personal loans are usually only suitable for emergencies, such as unexpected home repairs or medical bills. They are also usually expensive, though lenders sometimes offer low-interest loans. Finally, they can be difficult to obtain because of strict eligibility requirements and credit score requirements.
Interest rates and other fees
Interest rates are when banks and other financial institutions charge to lend money. As interest rates change, so do the prime rates and interest rates that banks charge to their customers. Knowing how interest rates work can help you better manage your finances since interest rates will have an effect on how much you can borrow and the interest you have to pay on what you borrow.
Getting a loan can be a great way to jump-start or expand your business, and while most banks and other financial institutions offer loans with variable terms, those that come with fixed interest rates are often hard to come by. This can make getting a loan for your small business or a personal purchase challenging. Luckily, there are personal loan options that feature fixed interest rates, and those options are available online.
Personal loans can get you through tough times, but they require a lot of responsibility. Make sure you understand all the requirements for obtaining personal loans so you can make the best choice to meet your situation.