The Battle Over Payday Loans Near Me 550 And How To Win It

Personal Loan: Definition, Types, and How To Get One

What is a Personal Loan?

Understanding the need for a Personal Loan

Types of Personal Loans

How Personal Loans Work

A Personal Loan Example

Where can I find personal loans?

By Rebecca Lake

Updated August 09, 2021

Review by Thomas Brock

Fact verified by Katrina Munichiello

What is a Personal Loan?

The term «personal» refers to a loan is a sum of money that you can get to use for various uses. For instance, you may make use of the personal loan to pay off your debt, fund home improvements, or even make plans for a wedding you’ve always wanted. Personal loans can be offered by banks, credit unions or online lenders. The loan amount you take out must be repaid over time, usually with interest. Some lenders may also charge fees for personal loans.

Important Takeaways

The personal loans are loans which can be used to pay for various personal expenses.

You can find personal loans through credit unions, banks, and online lenders.

Personal loans are secured, meaning that you need collateral to get money or unsecure, with no collateral requirement.

Personal loans aren’t the same in terms of interest rates, fees, amounts and the terms of repayment.

Click Play to learn all about Personal Loans

Understanding a Personal Loan

A personal loan lets you take out a loan to cover personal expenses, and then repay the money in time. A personal loans are a form of installment debt that permits the borrower to get the funding in one lump sum. For instance, you could make use of a personal loan to cover:

Moving costs

Debt consolidation

Medical bills

Wedding expenses

Home renovations or repairs

Funeral costs

Costs of vacation

Unexpected expenses

These loans are distinct from other installment loans–such as student loans and car loans, and mortgage loans–that can be used to finance specific expenditures (i.e. education, vehicle purchase and home purchases).

Some personal loan lenders limit the ways in which you are able to use the personal loan. For example, you may not be eligible for an individual loan to pay for fees for college tuition, fees or any other costs.

The personal loan is different from a personal line of credit. It isn’t a lump sum amount; it is more similar to a credit card. There is a credit line that you can spend money against and, when you spend it the credit available to you decreases. Then, you can make available credit by making a payment toward your credit line.1

If you have a personal loan generally, there’s a fixed end date by which the loan is due to be paid back. Personal lines of credit in contrast can be open and available to you indefinitely so long as your account remains satisfactory with the lender.2

The types of personal loans available

Personal loans could be secured or unsecure. Secured personal loan is one that needs some kind of collateral to be used as a condition of taking out. For instance, you may secure a personal loan with cash assets, like a savings bank account or a certificate of deposit (CD), or with an actual asset such as your car or boat. If you default on the loan the lender may keep your collateral as a way to settle the loan.

A personal loan requires no collateral to borrow money. Credit unions, banks, and online lenders may offer both secured and unsecured personal loans to borrowers who are eligible. The banks generally view that the latter is more risky than the former because there’s no collateral available to collect. This could mean paying more interest for a personal loan.3

How a Personal Loan Works

To get a personal loan it is necessary to apply to an institution. It could be a credit union, bank or an the internet-based personal loan lender.

In general, you’ll need to complete an application. The lender will review it and decides whether to accept or deny it. If you’re approved, you’ll get provided with the loan terms, which you can decide to accept or not. If you’re in agreement, the next step is closing the loan documents.

After that then the lender will then fund the loan which is the process of paying you the funds. According to the lender, they could be made via a direct transfer in your banking account or the form of a check. After the loan is approved and you are able to use the money as you see suitable. You then have to begin repaying the loan according to the terms stipulated in the loan agreement.

In default on a personal loan could result in significant negative effects on your credit. You may also lose collateral with secured loan or face being sued by your lender to recover the loan.

An example of a personal loan

If you are looking at the possibility of a personal loan it’s important to know how much it will cost. The annual percentage rate (APR) on personal loan is the cost per year of repaying the loan based on the interest rate and the fees. The APR as well as the loan term can determine how much you spend in interest throughout the term that you take out the loan.

Let’s say you take out a personal loan with an APR of 7.5%. The loan has a repayment term of 24 months. Based on these terms the monthly installment will be $450, and the total amount of interest you pay over the duration of the loan would be $799.90.

Imagine that you take out the same amount but with different loan conditions. Instead of a two-year loan, you have three years to pay back the loan, and your interest rate is 6.6% instead of 7.5%. Using those terms, your monthly payment will drop to $304 however your total amount of interest would rise to $951.90.

The way you compare the figures is essential for you to ensure that you get the lowest monthly payment possible or pay the lowest amount of interest when you take out the personal loan. A simple internet-based personal loan calculator can help you figure out what type of the amount of payment and the interest rate are the best fit to your budget.

Though some lenders charge no charges for personal loans However, other lenders may charge an additional fee for credit checks or a loan origination charge, or, if you decide to pay off the loan early–a prepayment penalty. In the event of a late payment, it could result in a late payment fee.

Where can I find personal loans?

The first place to look for personal loans might be at your current bank or credit union. Your personal banker will be able to advise you about what kinds of personal loans are available and the options to borrow for which you’re most likely eligible.

Personal loans are also available online. Many lenders provide personal loans online. You can submit an application online, get a decision in just a few minutes and, in certain circumstances, receive funding in just 24 to 48 hours after loan approval.

When comparing personal loans on or off the internet be sure to pay attention to the particulars. Specifically, consider these aspects:

Interest rate

Fees

Repayment conditions

Limits for borrowing (minimum and maximum)

Collateral requirements

You can check your credit report for free at AnnualCreditReport.com. When doing so, look for any errors that could harm your score, and don’t be afraid to contest them.

It’s also a good idea to look up the minimum requirements needed to qualify for the personal loan. Different lenders have different requirements regarding the financial score of the applicant, their income and debt-to income ratio that are acceptable to be granted a personal loan. This will help determine the loans that may best fit your financial and credit profile.

Feed desconocido

Lastest from our blog