Reasons to Get a Personal Loan
While getting a personal loan is an important decision and a very unique one for each person, there are a few major reasons you can look for a personal loan:
- To meet payment deadlines and cover budget gaps in your wedding planning
- To pay for a vacation or holiday you’re planning on taking
- To cover emergency repairs or maintenance on your vehicle
- To finance a relocation to a new city
- To make renovations and improvements to your home
- To pay off debts that are due
- To consolidate and pay credit card bills
- To handle unexpected expenses
Pros of Personal Loans
There are several reasons why it may be worth getting a personal loan over other types of financing. Here are some of the biggest advantages to consider during your personal loan comparison:
- Personal loans offer fast approvals and quick funding. You can sometimes get your money in as little as one business day
- You can usually borrow smaller amounts than you could with a traditional bank loan, with some lenders offering starting amounts as low as $1,000
- When you compare personal loan rates to credit cards, the former tend to have lower starting interest rates, and offer fixed repayment periods
Cons of Personal Loans
Even so, there are a few reasons you should consider not getting a personal loan. Here are some cons to keep in mind during your personal loan rate comparison:
- You’re still taking on new debt to pay for your expenses
- Rates can be unfavorable if you have poor or average credit
- Many loans include origination fees of 1% to 6% of the total amount you borrowed
- Although you can spot them, there is a potential of getting scammed if you’re not careful
- Fixed payments mean that you may have trouble paying if your finances change unexpectedly
FAQs about Personal Loans
- What is APR?
the Annual Percentage Rate (or APR) is the interest rate of a loan stated as a yearly figure. APRs can include fees and other expenses and gives you a better indication of a loan’s total cost.
- What is a Repayment Term?
A repayment term is the amount of time you are given to pay back your loan. For instance, 5-year term means you’ll have to make 60 monthly payments to settle your loan.
- What is the Difference Between Fixed and Variable Interest Rate?
Fixed-rate interest is set at the beginning of the loan and remains unchanged for the duration of repayment. Variable-rate interest can rise or fall based on a variety of economic factors.
- What Documents Do I Need for a Personal Loan?
Lenders usually request a photo ID, your social security, payment stubs or a W2 form, proof of residence (such as a lease agreement or utility bill), and financial statements.
- What is a Personal Loan With Collateral?
Also known as a secured loan, it is a loan that uses one of your assets (your home or car) to guarantee repayment of your debt.
- Why do Personal Loans Have Higher Rates Than Mortgages or Car Loans?
Personal loans are usually unsecured (they are not guaranteed by your assets), so lenders take on greater risk. This is compensated by higher interest rates.
- What if I Can’t Pay?
If you’re a few days late, you may have late fees attached to your debt. If you default, your debt will be sent to collections, and your credit score may take a big hit.
- Are There Penalties for Prepayment?
Though it varies between lenders, many companies today let you pay your debt in full as soon as you’re able with no extra fees.
How Much Money Can I Borrow, And for How Long?
It varies, but between $1,000 and up to $100,000 in loans, and terms range from three to seven years.