No thanks to labor issues, global conflicts, climate change, and the ongoing pandemic, the costs of living are rising sharply. Gas, food, and housing prices are at an all-time high, and the sad reality is that they will stay that way. So for many households, there simply isn't enough money to go around. When you've already slashed your budget but can still barely make ends meet, taking out a personal loan can help.
Frequently Asked Questions (FAQ)
What exactly is a personal loan?
A personal loan is a type of loan you pay back over time with interest, usually secured from online lenders, credit unions, or your local bank. You can typically get a loan of a few hundred dollars up to $100,000, depending on your credit score, income-to-debt ratio, and other factors. A typical repayment period for a personal loan can be anywhere between two to five years, but some can be as long as seven years.
Other than to help pay the bills, here are several reasons people take out a personal loan:
Debt consolidationHome renovationsMedical billsEmergency expensesMoving CostsOne-off large purchasesVehicle financingWedding expensesFuneral expensesEducationVacation costsInvestmentBuild credit historyWhat makes a personal loan more attractive than any other type of loan?
Whatever the reason, a personal loan can be a more sensible option than other types of financing. Consider the following advantages:
It offers quick access to cash with fast approval and payment times.You can get approved without collateral.It has a high borrowing limit of up to $100,000.It has lower interest rates than credit cards.No restrictions — loan proceeds can be used for any purpose.It is easier to track and manage because of fixed interest rates and predictable monthly payments.It has a longer repayment term than other short-term loans like payday loans and cash advances. Applying for a personal loan is more straightforward than taking out a mortgage, home equity loan, or any other type of loan.How do I choose the best personal loan lender? What should I look for?
Now that you've decided on a personal loan, the next step is to shop around for a lender that can offer you the best deal. While competitive interest rates and a stellar reputation are always good, these should not be the only deciding factors. Here are three more factors to look for when comparing personal loans.
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Annual Percentage Rate (APR) - This refers to the interest rate plus other fees such as loan origination fees and administration fees. If the loan is advertised as zero-fees, then APR would be the same as the interest rate. While the APR can vary greatly depending on the lender and your credit score, it typically ranges between 5% and 36%.
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Fees - While personal loans with no origination fees have become the norm these days, there are still other fees that you need to consider. Watch out for fees added on top of the interest rate such as prepayment fees, late payment fees, returned check or insufficient fund fees, and payment protection insurance. If possible, look for no-fee lenders that also offers low interest rates.
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Customer Service - This aspect is often overlooked but is one of the most crucial considerations. You want to work with a lender whose responsive, communicative and clearly explains the loan programs, terms, rates, fees, and more.
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