What’s a Personal Loan and Are They a Good Idea?
Recent studies show that roughly 40% of Americans don’t have enough money in the bank to pay for a sudden $400 expense.
If you’ve been living paycheck-to-paycheck for a few years now, we understand that you’d give almost anything to be able to experience even a little bit of financial security.
Many people rely on credit cards to get them through hard times, and still more people are currently paying off another kind of debt like a student or even car loan. However, credit card debt can quickly get you into a vicious cycle of interest rates and minimum payments that you can’t break out of.
And your past loans? You’re starting to wonder whether you’ll ever be able to pay them off. Plus, those past-due payments are destroying your credit score. So, what’s the solution?
For countless Americans, it’s a personal loan. But what’s a personal loan, and is applying for one the right choice for you? Read on to learn everything you need to know about taking out a personal loan.
What’s a Personal Loan?
First, let’s ensure you’re able to answer the most basic question, “What’s a personal loan, and how is it different from other kinds of lending options?”
Usually, a standard personal loan amount is anywhere from $500 all the way up to $100,000 depending on the terms of the loan, your credit history, and more. But here’s how it’s different than other forms of lending: you don’t have to specify the ways in which you’re going to use the money, nor does the lender have to “approve” of the way you plan to spend it. This means you can use personal loans to consolidate your debt, pay for sudden medical bills, pay for much-needed home repairs, or even to establish an emergency fund.
Most personal loans are unsecured. So, what is an unsecured personal loan?
Essentially, this means that you don’t have to put up any kind of collateral on the loan itself. If you’re unable to make payments, you won’t have to worry about the lender seizing your home, car, or any of your personal property.
The Benefits of a Personal Loan
There are many reasons why people are taking out personal loans at a historically high rate in America.
First of all, personal loans are an excellent option for people who need cash quickly. The approval period can often be as short as 48 hours, and there are even options for people with low credit scores.
Additionally, personal loans come with a fixed interest rate. This means you’ll know exactly how much you need to pay every month, making budgeting much less of a gamble. You’ll also receive all of the money in a lump sum payment, which can be a blessing for those who need a large amount of cash in a hurry.
You’ve likely heard about the high-interest rates associated with personal loans. While yes, that can be true, there are a few things to consider that will help you to see that in many cases, that higher interest rate is well worth it.
Know that you can absolutely negotiate with a potential lender when it comes to your interest rate. Collect at least three interest rate/loan quotes from three different lenders, and use the lowest rate to bargain your preferred lender down to a better rate.
Plus, the interest rates on personal loans are still often much lower than the interest on credit cards.
Yes, they don’t come with fancy rewards, but they also won’t make you go bankrupt.
How to Take out a Personal Loan
There are several different institutions where you can apply for a personal loan. Of course, you can go directly to your bank. You can also take out a personal loan from a credit union. However, especially in today’s world, many people choose to apply for a personal loan from an online lender.
Why? Online lenders are able to show you offerings from multiple lending companies at once so that you can get the best possible option for your needs.
There are a few qualifications that you’ll need to meet in order to be approved for a personal loan. First, you cannot currently be in a state of bankruptcy. You must also have a minimum monthly net income of $500.
You must be between the ages of 18-65, and you’ll need to prove you have a bank account where the lender can deposit the funds.
You will also need to be able to prove that you have a current, regular/stable source of income. Often, you’ll also need to give the lender past bank statements so that they can look into your current financial situation. You’ll also need to provide identification and proof of residence at your current address.
Is Taking out a Personal Loan Right for You?
Now that you can answer questions like “What’s a personal loan?” and “Is a personal loan right for me?” it’s time to begin getting the rest of your financial life in order.
Still, need a few more tips on how to improve your credit score or apply for the right credit card?
Our blog is the place to go for the latest (and most realistic) financial tips and tricks. We also invite you to visit our online shop to pick up some super-stylish clothes that will have everyone thinking you have a million dollars in the bank (even if that’s far from reality.)
Together, let’s get your finances — and the rest of your life — back on track so you can get back to chasing your dreams.