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By Katie Levene
There are a lot of questions out there surrounding online personal loans. Our goal is to demystify the personal loan and allow you to choose if it’s the right type of loan for you. Here are some common questions about personal loans:
Personal loans are usually unsecured, meaning no collateral is needed. Applying for a loan is usually simple but it does require running a credit report. A lender will want to ensure that you’re a good candidate for the loan and that you’re likely to pay the loan back in full.
Personal loans come with a variety of terms and rates depending on your needs. You could get a personal loan with a term from one to five years at many places and loans can range from as low as $1,000 to $50,000. The loan amount will depend on how much you apply for and are approved for, if you’re approved. It’s a rule of thumb to only ask for what you need so that you don’t pay interest on more than you wanted.
Many lenders offer a decision on your loan application the same day, and if you’re approved, will either write you a check or deposit the cash in your account the same day.
As with everything, you’ll want to shop around to find the personal loan that meets your needs. Pro tip: look for an online personal loan that does not have a prepayment penalty. Without a prepayment penalty, you’ll be able to pay off your loan early without an extra fee.
Personal loans could be used for many things. That includes debt consolidation, emergency expenses, home renovations, or even a once-in-a-lifetime vacation. (In general, personal loans cannot be used for things like gambling.) When you apply for a personal loan, you may be asked to specify the purpose of that loan to make sure that it conforms to the lender’s requirements. As mentioned earlier, you also don’t need to put anything up as collateral like you do when you buy a home.
Personal loans are most helpful when they allow you to consolidate debt at a lower rate, to pay emergency expenses quickly, or to fund a project that could yield a high return, such as a renovation.
Consolidating for a lower rate: An online personal loan could be for you if you’re paying off high-interest debt and you’d like to simplify your payments at a lower rate. Consolidating debt, such as credit card debt, into one low payment can help you evaluate how much debt you have because your debt is in one place. You can also then come up with a payment plan more easily and even create a plan to pay off your loan early.
Simplifying payments could give you some peace of mind and could reduce the likelihood that you miss a payment. Plus, with automatic payments, you can set it and forget it!
Paying for emergency expenses: The saying goes, “life happens when you least expect it.” Ideally, you would pay for sudden expenses with an emergency fund. However, most Americans don’t have more than $1,000 in an emergency savings account. So, when something unexpected happens, such as a pricey hospital visit or a major leak in your roof, an online personal loan could help. Many lenders will give you a decision on your loan and deposit the money into your account the same day you apply. In other words, a personal loan is great when you need cash fast.
Funding a project with potential return: Whether it’s an investment in your home or yourself, a loan could open opportunities for growth. A personal loan can help fund a home improvement project with a big return. It could also help you pay for a certification that could help further your career. If you don’t have the funds to start a project today but believe there will be a return on your investment, a personal loan may be able to help.
Check out these other useful loan tips:
Katie Levene is a marketer fascinated with finance. Whether the topic is about the psychology of money, investment strategies or simply how to spend better, Katie enjoys diving in and sharing all the details with family, friends and Money Mentor readers. Money management needs to be simplified and Katie hopes she accomplishes that for our readers. The saying goes, "Knowledge is Power", and she hopes you feel empowered after reading Money Mentor.
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