What is a Personal Loan?

How does one go about getting a personal loan?  What can the money lent through a personal loan be used for? These are all fairly typical questions asked about Personal Loans. Many Americans find themselves without the funds needed to make a big purchase or pay off a surprise medical or repair bill.  A personal Loan is a great way to get the cash you need, when you need it.  Personal loans are typically issued by a bank or credit union, although there are other lenders offering personal loans. The money you borrow through a personal loan is payed back in monthly installments or fixed payments with interest added.  Most personal loans have a payment plan that spans 2 to five years.  The interest rate varies by loan and lender, with rates usually falling in the 5-35% range.

Many Personal loans are considered “unsecured” loans.  These loans do not require you to place any collateral to get the loan.  Because most personal loans are unsecured they tend to be more expensive than a secured loan. Secured loans usually use a valuable asset, such as a vehicle or home, with the intent being that if you default on the loan payments the lender takes the asset to re-coup their losses.  Personal loans are also typically unrestricted, meaning you can use the money for any purpose, and are not restricted, as you are with a car or home loan.

Personal loan rates are usually better than most credit card rates, and they typically tend to have higher limits. This makes a personal loan an incredible debt consolidation tool. However, personal loans are often subject to the whims of the lender, and many lenders will not offer decent rates if your credit score and loan history are poor.  If your credit score is not high you may still be able to qualify for a personal loan, but you may need to secure the loan with an asset or assets. If you are unhappy with the options you get from various lenders you can always shop around for different lenders.  This is highly recommended as various lenders have different credit requirements and variable rates.

If you find that you can qualify for a personal loan, make sure you take the time to sort out your finances before signing any paperwork. Figure out what you can pay each month before applying for a loan.  If you apply for a loan and then find you are unable to meet the minimum monthly payments you can find yourself in deep financial trouble. If you are able to plan out your monthly expenditures and find you can afford the loan you are looking for, then a personal loan is a great way to get an influx of cash exactly when you need it. With a personal loan you don’t need to worry about surprise medical bills or sudden car repairs.  You can get the money you need and get back on track.