Loans are utilized by millions of Americans every year. Personal Loans are a popular loan program that helps individuals pay for things such as home improvement, car repairs, and debt consolidation.
These loans are unsecured, meaning they can be used for anything the borrower desires. The amount of Americans who have a personal loan increases every year as of this article there is 22 million people with a personal loan.
Why are personal loans growing in popularity? Many individuals love the personal loan options due to the lower interest rate and the freedom of using the loan for anything they desire.
Before getting a personal loan, compare all the loan options available to you as this might not be the ideal loan product for you. But if you decided to get a personal loan here are crucial 6 points understand about personal loans.
Personal loans function just like any installment loan, which means you borrow a predetermined amount from a lender that can range from $1,000 to $100,000, depending on the lender, and agree to repay the lender in installments over a period of time.
In most cases, personal loans are longer-term loans that can range anywhere from 12 to 84 months and have an interest rate attached to the amount in the form of an Annual Percentage Rate (APR).
Since most personal loans are considered unsecured, which means there’s no collateral backing the loan, lenders primarily focus on the individual’s personal information such as credit score and income to determine approval.
That being said, individuals with a higher credit score will receive more favorable terms from lenders. Before considering applying for any loan, be sure to compare lenders and select the right loan for your needs.
Just like any other loans, personal loans come in a category that can range from secured or unsecured loans. Be sure to compare both of the loan categories before applying for a loan to see which one might fit your needs the best:
Unsecured Personal Loan: This is a type of loan that does not require collateral or any type of asset to secure the loan. These types of loans are usually evaluated based on the borrower’s financial history.
Unsecured loans can be a great option for any individual but are more favorable for borrowers with higher credit scores helping them receive more favorable rates.
If you are not able to qualify for an unsecured personal loan, be sure to see if the lenders offer a secured loan, which can help you qualify for the loan or receive better terms.
Secured Personal Loan: A secured personal loan is a type of loan that is backed by collateral or some type of asset, such as a car, savings account, or home equity.
The collateral serves as a guarantee for the lender that they will be able to recover the amount of the loan in case the borrower defaults on the loan. Because the loan is secured by collateral, it typically has lower interest rates and more favorable terms compared to an unsecured personal loan
Even though personal loans might be a great option to provide you with some funds for personal needs. there are many other lending options out there that might fit your situation a lot better.
For instance, if you’re looking to consolidate some debt and have a good credit score you’re able to qualify for a balance transfer card which can be 0% interest for up to 24 months giving you some time to pay down your debt and saving you money at the same time.
Other great loan options to consider might be 401k loans, home equity loans, lines of credit, HELOC, and peer-to-peer lending platforms. Be sure to compare all of your options before making a decision as some might work better for your needs.
When applying for any loans, lenders will, in most cases, do something called a hard pull, which will usually lower your credit score temporarily by up to 10 points. However, taking out a personal loan can help you diversify your credit mix, which is a big factor in determining your current credit score.
Furthermore, if you make timely payments on your personal loan, it will increase your credit score over time and help you build a good credit history, which can stay on your credit record for up to 10 years. In most cases, before applying for a personal loan, lenders will do a soft pull to give you estimates on your loan, which does not impact your credit score.
Personal loans, just like any loan product, will come with interest and fees. These fees will vary widely from lender to lender, and here are some things to consider when applying for a loan.
Prepayment fees: Although not common, are charged by some lenders if you pay off the loan before the agreed-upon time. When applying for a loan, make sure to check with the lender if they have any of these types of fees.
Interest & Origination Fee: Personal loan rates can vary from lender to lender, starting anywhere from 2.99% and going up all the way to 36%. The better your credit score, the more likely you are to get approved for a lower rate, which can help you save money on the loan process.
Additionally, some lenders charge origination fees, which is the fee charged by the lender to process the loan, and can range from 1 to 10%. To make it easy for consumers, lenders combine the interest and origination fees and display it as an annual percentage rate (APR).
There are many lenders from whom you can find and apply for personal loans. You are able to receive a personal loan from banks, credit unions, online institutions, and peer-to-peer lending platforms, which are all great options for obtaining a personal loan.
To make this easier, you can access a personal loan lender using this website. Before applying for a personal loan be sure to consider all your other options and compares lenders.
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