Do I need a personal loan? You’re here because you want to know if it’s right. A personal loan can be taken out for many reasons. You might want to buy new wheels, or you may be expecting your first child. No matter what reason you have, a personal loan is a great way to help you realize your dreams faster. Let’s take you through the details of applying for one of these loans.
What is a personal loan?
Personal loans are a fixed-rate, installment loan that can be used to pay off debts. They typically range from $500 to $100,000. A loan has a monthly fixed payment amount and an expiration date. Your creditworthiness and the interest rates charged by lenders will vary. A personal loan is often used by borrowers to consolidate credit card debt, or to pay for an expensive, one-time expense such as a wedding, surgery, or funeral.
What is the Secret to Their Success?
Lenders would want to see your credit score if you were in the 80’s. You must also show them your tax returns, and your employment details. Only then can they decide if you are eligible for a personal loan and, if so how much interest. A new breed of lender has emerged in today’s technology-driven world. Non-traditional factors like your SAT scores or social media accounts are used by these lenders to decide on your loan application. It’s much easier to obtain a personal loan today than it was in years past, when credit unions or traditional banks were the only options.
There are many types of personal loans. There are loan terms that can last for up to a year. Short loans, such as payday loans, are due within a few weeks. It is a common practice to not pay interest on payday loans if you can repay the loan in the time allowed. The lender will require that you pay the origination fees for the loan. According to infoforinvestors.com, you have to shop around and compare at least 3 lenders before getting any decision.
Other forms of personal loans, such as installment loans, start accruing interest from the beginning. The amount you pay in interest will depend on the loan amount and the interest rate that you agreed to. If you take out a loan for a longer term, some lenders will adjust your interest rate. Let’s look at the pros and cons associated with a personal loan.
Personal Loans Advantages
Personal loan has a couple of advantages, but carefully review if you need it before taking out a loan since it can bury you in more debt that you had before:
Fixed Terms
A personal loan will allow you to pay a fixed amount of interest over a set number of years. Think of it this way: Shorter terms mean lower interest over the years, but higher monthly payments. It can be an advantage but it could also be disadvantageous depending on where you are.
Simple Application Process
You can get these loans at almost every bank or financial institution. The application process is quick and easy because they require minimal paperwork. The entire loaning process, from application to documentation to release, takes less time than other types of loans. Personal loans are the best choice if you have an urgent need.
Unsecured Loans
As we have mentioned, personal loans can be unsecured. Lenders will not ask for a mortgage or guarantee to get a personal loan. Personal loans are a better option than other types of loans. Even if you don’t have fixed assets, you can still obtain a personal loan to help you get out of a jam or for investment purposes. You don’t have to worry about your home or other assets being lost if you experience a financial setback or fail to make timely payments.
All Purposes Available
Lenders won’t require borrowers to indicate the purpose of applying for a personal loan. Personal loans can be used for multiple purposes, unlike housing loans that limit the use of funds for the purchase or construction of a home or for auto loans that are limited to the purchase of a vehicle.
One Payment Option
This is how it works: By consolidating multiple credit cards and a personal loan, you only need to keep track of one bill instead of several. This would simplify many things. This will allow you to focus your attention, time and resources on that one payment. You can tick off the months until your debts are completely eliminated.
Personal Loans: Disadvantages
Here are the main cons you should take into account if you considering a personal loan:
Higher Rates and Lower Payments
Lenders charge higher interest rates because unsecured personal loans can be riskier than those secured by real property. Your credit score and the amount of your loan will have a significant impact on your interest rate. It is possible for lenders to conceal a substantial portion of the interest in upfront fees, such as processing fees and loan origination fees.
This keeps you in debt, and it’s only getting worse. Many financial institutions and banks won’t allow partial repayment of loans. This will cause your debt to grow due to accrued interest. If you want to repay $1,000 on a personal loan of $10,000, it won’t work. The lender won’t allow partial payments, unlike with housing loans and other types of loans. You can reduce the loan amount with other loans by using the repayment feature, which will also lower the overall interest. According to CreditSpring, before you consider short-term lending, you need to evaluate whether or not you can afford to pay back the amount you borrowed and the interest.
Stiff Repayment Rules
You can choose your repayment term, but you cannot change it once you have chosen it. Most lenders won’t want you to modify your terms. This means you cannot prepay the loan, or make a partial payment. You must pay the full amount. You could also face legal action if you don’t pay your EMIs on the due date. This could cause more problems.
Exclusion Criteria
Lenders must adhere to strict guidelines when it comes to personal loan eligibility. Many banks and NBFCs require that borrowers have a certain income before they will consider granting a loan. They will also look at the applicant’s credit score.
The bottom line
A personal loan is the best option when a borrower has a short-term cash need but no collateral or is in urgent need of the funds. The borrower must remember that the interest rate on this loan is higher than other loans. It can cause financial problems for the borrower if he cannot pay the loan.
