When in need of cash for a specific purpose, there are always a variety of options available. Personal loans have several advantages; they are easy to process and have short disbursement periods of about 24 hours. Personal loans can suit a variety of uses. They can be used to consolidate debts, fund weddings, and in case of an emergency such as a hospital bill, you can always apply for a personal loan. Personal loans will offer you almost any financial support you need. It is also important that you borrow your personal loans from reputable institutions. Customer review sites will help you identify reputable lending institutions. By visiting them, you’ll be able to see customer critic on various banks and thus know which is the best to go for. Personal loans come in several forms. Below is a guide that will help the reader understand personal loans better.
How they work
Personal loans are a fixed amount of money that one borrows from a money lending firm. These firms can be; banks, credit unions, or peer-to-peer lenders. Personal loans have a fixed monthly payment plan which is payable in a given period. The most common period for a personal loan is between 12 and 84 months. The amount one can borrow depends mainly on the lender and one’s credit score. However, personal loans are available in amounts ranging between $1,500 and $100,000. It is worth noting that some firms can offer higher amounts up to $250,000. It is always important that when you are borrowing a personal loan, you should go for an amount that best suits your needs and which you’ll be comfortable paying.
Types of personal loans
There are two major personal loan types, these are;
- Secured Personal loans-These are loans that have collateral attached to them. Collateral can be an asset valued at the same amount as the loan amount acquired and, at times, can have a slightly higher valuation. Examples of items that can be used as assets include a car, a house, or a piece of land. In case of default payment, the lender takes the asset to recover the amount.
- Unsecured Personal loans-These loans do not require any collateral to back them. Instead, with unsecured loans, the lender considers the borrower’s credit score and decides if they are eligible or not. The more satisfactory your credit score credit score, the better the terms that a borrower gets.
Should I go for Personal loans, or should I consider other lending options available?
When a financial need arises, there are always a variety of financial options to choose from. While personal loans have many advantages, it is always wise to think twice before going for one. Ask yourself what other lending options are available at your disposal. Contemplate the options that will save you money in the form of interest, transaction, and transfer fees.
A better choice, if you have good credit, is a balance transfer credit card. It may come with a 0% introductory annual percentage rate (APR) if you qualify for this card. Nevertheless, it is important to know that you should repay the amount before the expiry of the introductory rate, and this way, you’ll enjoy the low to no interest rate
Home equity loans can serve homeowners with more significant amounts of money. These loans have small interest rates than personal loans. They can also use a line of credit loan, which also provides better services and lower interest rates. It is worth remembering; if you default to pay home equity and line of credit loans, the financier has the right to take your house to recover their money.
Interest rates and other fees
When borrowing, interest rates and any other fees attached to the loan will govern how much you will pay. These rates differ with every lender. Consider the following factors in this category.
- Interest rate- when borrowing, check for the interest rates attached to a personal loan. If your credit score is good, you may negotiate for a reduced rate. Interest rate will also be determined by the amount of time you will repay the loan; more extended repayment periods are likely to attract higher interests than shorter ones.
- Origination fees other lenders will charge you for processing your loan. These charges also differ from one lender to another. Be sure of how much they will charge you for it.
- Repayment schedules-Your loan repayment comes with a plan. Advantages come with the time you repay. If you pay early, it means you have reduced the interest you are supposed to pay. If you fail to pay in time, extra charges may apply.
In summary, all the loan inquiry process needs planning. Make sure lenders don’t reduce your credit score by pulling your credit through hard inquiry. Do proper research before choosing a loan package.