Needing to borrow money can be an uncomfortable feeling. Nonetheless, there are options that will help you regain your financial footing. If you need to make a big purchase or have a financial emergency, taking out a personal loan can be a wise decision to cover your expenses. Just remember that it is very important to have a solid plan to pay it back.
What Is A Personal Loan?
A personal loan—despite any confusion from the name—is a loan given out by banks, credit unions and online companies for people who have a history of dependably paying back what they owe.¹ Each company or bank giving out a personal loan will have specific requirements, but if your credit score is solid there is a good chance you can qualify. Most personal loans are unsecured, meaning that if you take out a personal loan you will not need to put it against assets or possessions of your own.
The Advantages Of A Personal Loan
There are many advantages to taking out an unsecured personal loan. With fixed monthly rates and no need to put down assets as collateral, personal loans are given to you as a flat lump sum. Interest rates can get somewhat high, however, so make sure you carefully check the exact interest rate before taking out a personal loan. The good side of a personal loan in terms of the interest rate, however, is that as long as you get a fixed-rate loan the interest rate will stay as one rate and not jump around so you at least know what to expect.²
Check The Fine Print
Before taking out a personal loan you should carefully read the fine print. This is where you will see specifics for the interest rates and other fees you will pay. This often includes costs for something called origination—which is the cost for the bank or institution to process and approve your loan. It also includes possible prepayment fees. Prepayments occur when you pay off your loan ahead of schedule in a big lump sum, in which case the loan provider will hit you with a punitive fee. They charge this extra fee because if you pay off your loan in advance, it means they can no longer collect interest.³
Not every loan has a prepayment fee, so it is something to look for carefully, especially if you think you may be in a position to pay off your loan early.
Putting A Personal Loan To Use
It is possible to get a sizeable personal loan and use it to boost your finances significantly. If you need cash on hand right now or have a big purchase—or an emergency of some kind from medical to an accident affecting a family member—but don’t want to pay the high interest rate on your credit card, a personal loan can be the perfect way to borrow at a lower, fixed-rate and take your time to repay the money.
Finding The Best Personal Loan
Finding the best personal loan that meets your need and budgets is a matter of asking around and researching online. There are many institutions offering very good deals on personal loans. These options include both secured loans, where you back the loan with your assets and possessions (collateral), and unsecured loans where no collateral is required. One advantage of a secured loan is that you will generally be approved more quickly for it, as it entails you taking on more risk. Secured loans can also have lower interest rates.
To apply for a personal loan you will need your ID, a copy of your credit history, bank statements and debt history and an explanation for why you want the loan. Take these to the bank, credit union or website where you are applying and you are ready to apply for a personal loan.⁴
A great way to get started with finding a personal loan is to perform an online search. A search will reveal many of the different available loan providers and allow you to compare the different terms and interest rates so you can find a great loan for your specific scenario.