Personal loans are unsecured loans that give you access to funds, without collateral. They usually have better interest rates than credit cards, but maybe harder to get qualified for. Fortunately, personal loans are offered by commercial banks, online banks, and credit unions, so you are likely to have plenty of choice regarding which lender to opt for. If you are looking to apply for a personal loan, here’s a quick guide.
Common Purposes to Apply for a Personal Loan
Most lenders who offer personal loans don’t have any restrictions on how the loan amount can be used. A few common reasons why people borrow personal loans are to pay for unexpected events, consolidate debts, finance home improvement projects, etc.
Are Collaterals Required?
Most personal loans are unsecured, meaning you don’t need to offer a collateral to borrow the loan. This means you don’t risk losing your home or possessions if you default on payments. The lender may, however, report your payment defaults to the credit bureaus and transfer your account to a collection agency.
Minimum and Maximum Loan Amount
Personal loan amounts typically range between $1,000 and $50,000. How much you can borrow depends entirely on your income, debts, credit score, and the lender’s terms and conditions. If you have a high income and credit score and not too many debts, you’ll be able to borrow more.
Interest Rate and Fees
Personal loans have a fixed interest rate, which means your monthly payments are fixed. The exact rate you will be offered will vary based on the lender’s terms and your credit score. A good credit score can help you secure a loan at a competitive rate. In addition to the interest rate, you may also be charged an application fee, origination fee, prepayment penalty, and late fee.
Applying for a Personal Loan
Before applying for a personal loan, it’s important to compare different loans, and pick the one that has the best rate and terms. You’ll usually find that a bank or credit union that you have a relationship with will offer you more competitive terms. Once you borrow the loan, ensure that you repay your monthly dues on time, to keep your credit score from taking a hit.