All You Need to Know About Personal Loans

If you need a substantial amount of money, a personal loan usually works out as a better option than charging expenses to a high-interest credit card. Here’s what you need to know before you apply for a personal loan.

Common Purposes to Apply for a Personal Loan

Most lenders that offer personal loans allow borrowers to use the funds at their discretion. Some common reasons why people borrow personal loans include debt consolidation, to pay for emergency medical expenses, and to finance home remodeling projects, among other things.

Points to Note

1. Loan amounts: The amount that you will be able to borrow will vary based on your income, outstanding debts, credit score, and your lender’s terms and conditions. However, typically, personal loan amounts range between $1,000 and $50,0000.
2. Interest rate: Personal loans usually have a fixed interest rate that doesn’t change during the loan term. Interest rates are based on the borrower’s credit score, so the better your credit score is, the lower you will be charged for the loan. In addition to the interest, lenders may also charge late fees, prepayment penalties, and origination fees.
3. Collateral: Personal loans are unsecured loans, which means you don’t need to use an asset as collateral to borrow the loan.
4. Repayment term: The repayment term for personal loans usually range between 12-60 months. You may also find personal loans with longer repayment terms.

How to Apply for a Personal Loan

Personal loans are offered by commercial banks, online banks, and credit unions. If you need to take a personal loan, it’s best to start with checking your credit score. If you don’t have a favorable credit score, you may want to wait until your score improves to apply for a loan.

Next, it’s a good idea to start checking the loan offers of different lenders. You should, ideally, try to find at least 3-5 loans and apply for pre-approval, so you can compare the details of these loans, and decide which one to apply for. Make sure to keep your repayment capacity in mind before you borrow. Remember that any payment defaults will be reported by the lender to the credit bureaus, which can then impact your credit score.