Whether it is a financial emergency or you have a large project, personal loans are an effective way to borrow money. Requiring little paperwork and typically taking a few days at most, it can alleviate stress when compared to other lending products.
Personal loans are a type of installment loan, meaning there are equal monthly payments over a defined period. Typically a personal loan in uncollateralized, meaning you do not have to back the loan with an asset, unlike an auto loan or mortgage.
Since they are unsecured, interest rates do tend to be higher than other loans but are much cheaper than a credit card rate.
Personal loans can be applied for through a bank or credit union. You can also utilize online companies that pool investor money together to fund the loan. Lending Club is an example, which is known as peer-to-peer lending.
Now, the type of loan you get can depend on your needs. You can use a personal loan for debt consolidation, where the lender will pay directly to the creditors you owe money to. As mentioned, large purchases can be funded through a personal loan as well.
Thanks to advances in the financial technology space, personal loans are much easier and simpler to apply for. You can certainly go the more traditional route of banks and credit unions. However, banks have tended to shy away from personal loans, while credit unions are more well known for it.
Online lenders have become popular and the process can be completed exclusively through a computer. Many of the same questions apply, but the process can be quicker with more automation.
Some things to consider when applying for a loan is your debt-to-income. This is a key data point potential lenders look at during the underwriting process. Too much debt and not enough income can make it difficult to obtain a loan.
Another point to consider is the interest rate. This is the cost of borrowing and can fluctuate greatly between lenders. There is nothing wrong with shopping around, especially if you are taking out larger sums of money.
Lastly, you want to ensure there is no early repayment penalty. Ideally you want to pay off the loan as quickly as possible, and if that means paying it off early the last thing you want is to be penalized.
An alternative to a personal loan can be a credit card. However, if you need to utilize a credit card find an issuer that gives a zero-interest introductory offer. Another alternative can be borrowing against your savings or certificate of deposit. Lastly, you can always take out a second mortgage if available, but this process can take weeks.
Personal loans are a perfect way to get the cash you need for life’s happenings. Be sure to shop around and find the best interest rate. Once approved, look for a plan to pay it off as quickly as possible, saving you money in interest.