A personal loan can help you finance a major expense and pay off your debt more affordably than using credit cards. It’s a closed-end loan that you must repay in set, equal monthly payments over a defined period of time. These loans can be unsecured, meaning that you don’t have to put up collateral, or secured, which requires you to pledge an asset like your car or a home as a means of guaranteeing the lender they will get their money back if you fail to make your payments. The range of personal loan amounts, interest rates and terms vary significantly among lenders, so it’s important to shop around for the best deal available.
You can apply for a personal loan through specialized online lenders, financial institutions or banks. Lenders typically require a valid photo ID, proof of income and address before they can approve your application. They’ll also usually run a hard credit inquiry, which can have a short-term negative impact on your credit score. The application process can be lengthy, and the lender will want to see that you have steady income that you can dedicate toward your repayment schedule.
Once you’re approved, the lender will send you the funds. They can be sent via bank transfer or a paper check, depending on the lender’s policies. Upon receiving your loan proceeds, you must agree to a repayment schedule, including the monthly payment amount and the total cost of the loan, which includes both principal and interest. Your lender may also charge an origination fee, which is a percentage of your total loan amount, or other fees that you should review carefully before accepting the terms of your loan.
If you’re struggling to keep up with your monthly payments, contact your lender as soon as possible. They may offer deferment or forbearance options, which can help you catch up on your payments without damaging your credit score. You may also be able to work out an alternative repayment plan with the lender to help you avoid late or missed payments.
Many people choose to use personal loans to pay for a variety of expenses, from vacations and weddings to debt consolidation or medical emergencies. Other common uses include home renovations, debt repayment and education expenses. A personal loan can often be obtained more quickly than other types of financing, and you can often choose a repayment schedule that matches your budget.
Personal loans are also a popular way for consumers to cover the down payment on an automobile. However, you should weigh your alternatives carefully before deciding to take out a personal loan to purchase an auto, as personal loans generally come with higher interest rates than mortgages and auto loans.