Personal Loans

Information about personal loans you need to know about:

Personal loans are a great solution if you want money quick for a specific need.  There are many factors to consider when deciding if a personal loan is the type of loan that’s right for you. 

Over the last few years, technology has advanced so much lending companies are able to bring their business online making it much easier to get money. 

Personal loans offer low-interest rates to applicants with good credit and can range in size from $500 to $50,000. 

If you are thinking of applying for a personal loan, here are a few things to help make your decision.

Tip: Read more about other loan types.

What are personal loans and how do they work?

Personal loans are installment loans, which means you pay back the loan along with interest over the life of the loan.  The length of the loan depends on your credit, the amount of the loan and how quickly you want to pay it back.  Loan terms range from 12 months to 84 months in most situations. 

Lending companies offer two types of personal loans, secured and unsecured.

-Unsecured loans are the most common and based on your financial history and do not use collateral for approval. 

-Secured loans are backed by collateral, meaning that a lender has the right to claim your asset as payment for the loan.  The most common forms of collateral are savings accounts and CDs.

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Where to get a personal loan and how to qualify?

Nowadays, you don’t have to go to a bank to get a loan.  From the comfort of your own home, you can get personal loans online through credit unions, peer-to-peer companies, online lenders to just name a few. 

Personal loans are typically unsecured, which means companies will evaluate your ability to pay back the loan based on your credit performance in the past.  

Another element of qualification is your income and the ability to afford to pay back the loan.

What can you use personal loans for?

Personal loans can be used for anything you would like.  Although some lenders may ask the purpose of your personal loan, which often will change the interest rate.  The best practice is, to be honest through the whole application process.  

Common uses of personal loans are the following: Competitive interest rate debt consolidation, weddings, medical expenses, moving expenses, funerals and home improvements.

It is important to set a budget and have a plan to pay back your loan.  There are many resources online that help you decide if you can afford an additional monthly payment.

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Pros of personal loans:

Applying for a personal loan can provide you with a number of benefits.
  • A personal loan can be a great way to consolidate your credit cards and other loans.  In many cases, you are able to lower your overall monthly payments and reduce your interest rate.  One monthly payment is much easier to keep track of, and it structures a very clear plan to pay off the debts completely.
  • Many peer-to-peer companies will give you an approval extremely fast and cash can be in your bank as soon as the next day.

  • Personal loans are almost always less expensive than cash advances on credit cards.  The interest rate for cash advances can be close to 25 percent with transaction fees ranging from 3 percent to 5 percent.

  • Boosting your credit score is a huge bonus for many when personal loans are used to consolidate debt.  Personal loans are installment loans, therefore it provides a fixed repayment term.  Reducing or eliminating revolving credit card debt with a personal loan will improve your credit score dramatically.

What to know before applying for personal loans:

Your credit history and credit score will play a critical role in your interest rate as well as being approved.  Be sure that your bills are always paid on time. If you have tried to get loan or credit cards in the recent past, this can also lower your credit score as well.

  • You must have a steady income to cover your repayments each month.  Insufficient income is often the reason why personal loans are not approved.

  • Be prepared to provide tax documents such as W2s and 1099s from previous years.

  • Honesty is the best policy.  Lenders will verify all the details you provide them during the application process.  They often reject applications when there are inconsistencies.

Having this information readily available may help to speed up the application process and assist in having your application for a personal loan approved more quickly.