Personal loans are one of the simplest types of loan that you can get. You borrow a fixed sum from a lender, you have a fixed interest rate, and you have a fixed timeframe. As long as you stick to your payments, you will know exactly when you are going to have paid off your debt, and you will know exactly how much you are going to pay back. As long as you meet all your repayments on time, you should be in the clear!
Personal loans are unsecured, and therefore don’t require any of your money or possessions (i.e. your house) to be put down as collateral. If you are approved for a personal loan, you simply pay it back at the pre-arranged rate over your pre-arranged timeframe. Personal lines are quick, and the funds can be transferred to you within one business day. This convenience has led to the popularity of high interest “payday” loans that aim to tide people over financially until their next payday.
When taking out a personal loan, it is recommended that you look for loans with no pre-payment penalty attached. These penalties charge you a fee for paying off your debt early, as strange as it may sound. You should also avoid insurance policies on your loan, as many companies will try to sell you these, but they are seldom useful and mostly a way to make extra money for the company.
You should, of course, look into getting the best APR that includes both the interest rate and any fees attached, allowing you to have a comprehensive understanding of exactly what you will be paying back.
Some lenders will charge you origination fees, meaning you will essentially pay a fee just to receive their money. These fees are often deducted from the sum that is loaned to you. Therefore, if you were to borrow $1,000 and there was a 3% origination fee, you would only actually receive $970 after the fee’s deduction. You may, therefore, have to take this into account and ask for slightly more money than you actually need, as it will be depleted initially. Alternatively, look for a lender who does not charge an origination fee at all.
Personal loans are commonly taken out for home renovation projects, weddings, and luxurious vacations. They are also commonly used as a way to consolidate your existing debts at a lower interest rate.
Personal loans are ideal if you require cash rather than plastic-based credit. They are also advantageous because they often have lower interest rates attached to them than credit cards do, and personal loan companies often accept people with lower credit scores too. Personal loans can be a more transparent and manageable alternative to credit cards, though they should be used wisely nonetheless.