A personal loan, in short, is a set sum of money that a person can borrow from a financial institution. The limitation on personal loans tends to be less strict. For that reason, people tend to seek them for various purposes—everything from paying for a medical emergency to starting a new business.
What It Is
As mentioned above, a personal loan is something that you can gain from any financial institution. The size of the loan will be almost entirely dependent on your income and credit history but can be altered by a few other factors. Read more about those over at Money Crashers.
Unlike a home loan, there is no required collateral to get started. This makes them easier to apply for and much more approachable. Likewise, personal loans tend to be easier to qualify for.
Types of Loans
When it comes to choosing a personal loan, there are several types to choose from. There are standard personal loans, which essentially work through a bank or credit union. They are the most traditional form, and you can typically apply both in-person and online.
Alternatively, there are specialized lenders out there, designed for specific purposes. For example, many dentists or medical professionals work with loans to help provide emergency medical treatment. It is their goal to make the process quick and painless for obvious reasons.
Picking the Best Plan
When shopping for options on a personal loan, there are several factors that one must keep in mind. The largest is the loan’s annual percentage rate. Watch for the APR whenever considering any loan option.
It is essential to calculate the total cost, including the APR when agreeing to a loan. There are plenty of online calculators available, including NerdWallet’s personal loan calculator, to help out.
The personal loan you are offered will be dependent on your credit score. But the reverse is also true. Your personal loan will directly affect your credit score, another thing to keep in mind.
Don’t let that be a deterrent. In fact, for those that are looking to build credit, this may be a solid option. It is vital for you to remember that it can also work the opposite way and decrease your credit score if you don’t pay off the loan accordingly.
The average repayment time for a personal loan is five years. However, just like many other elements in a personal loan, this can be altered. As with any other change, keep in mind that it will impact every aspect of the loan itself. The Balance goes a bit further into this process.
Uses for Personal Loans
The potential uses for a personal loan are limitless. People have used them for everything from covering an emergency to rehabbing their dream homes. As long as you are financially responsible in the entire process, personal loans promise to help clear the way.