The Average US Citizen carries just under $40,000 worth of debt. That number has crawled up steadily as the cost of goods and services in the country have increased while wages have largely stagnated.
For many people struggling with debt, answering questions like, “How can I patch that hole in my roof?” or “How am I going to afford this surgery?” is difficult. Fortunately, personal loans are always there to provide an assist when they’re needed.
If you’ve considered taking out a personal loan in the past but are stuck because you’re asking yourself how do personal loans work, this article is for you. You may also want to look at other articles that look at what you should consider before taking out personal loans, articles such as this one can help you make your mind up and decide if a personal loan is right for you or not.
In it, we share some quick tips that’ll bring light to your personal loan concerns and will help you to borrow more responsibly.
1. Understand Interest and Fees
The biggest component to the “how do personal loans work” question is service charges. Those charges are imposed by the lender in the way of interest and fees. The interest rate that your loan carries tells you how much you’ll need to pay back in addition to the money that you borrowed.
For example, if you borrowed $100.00 that you had to return at the end of the month with 10% interest, you’d pay back $110.00. Fees are miscellaneous charges that lenders tack onto personal loans they award. Fees can be for everything from paying your loan off too late to paying it off too early. If you understand what fees and interest you’re going to run into with a loan product, you’re well ahead of the average borrower’s curve.
2. Only Borrow What You Need
Now that you know what a loan costs, next, you’ll want to decide how much money to borrow.