Specific things demand specific types of loans. For instance, auto loans are for buying cars while mortgages are for purchasing houses. But what if you need funds to do some other things?
If you need a loan to cover other expenses like medical bills, furniture purchase, house renovation, or moving expenses, then it’s a personal loan you need. Luckily, you can access a personal loan online.
What is a Personal Loan?
A personal loan is a kind of financing. In other words, it involves someone—usually an online lender, bank, or credit union—providing you with a lump sum of money. Then you’d agree to repay the amount, plus the interest in increments over a given period.
In general, the funds you get from a personal loan can serve any purpose for you. This kind of loan provides you greater flexibility than loans like auto loans, which only serve the purpose of vehicle purchase.
How Does a Personal Loan Work?
First, you have to apply with a lender to get a payday loan.This often means providing them with some of your personal details, including your income and how much money is in your account.
If for instance, the lender deems you safe to offer a loan judging from your details, they will approve you for a personal loan and give you with the loan funds in a lump sum. Then, depending on the agreement you reached with them, you can start the process of gradually repaying the money together with the interest. Most often, you’ll be required to make monthly payments for the loan term (a certain amount of time).
Things to Know About Interest Rates?
You must have read where we said that you’ll repay this loan with interest. The interest is normally the fee that you pay the lender in exchange for the funds they lent you.
The higher your interest rate, the costlier your loan will be over its cycle. Always try to compare interest rates before you get a personal loan to ensure you’re getting the lowest rate available.
In addition, check the kind of interest rate. Let’s say it’s a fixed rate, the you should know exactly how much interest you will pay over the loan timeline. If it’s a variable rate, the lender can slightly modify the rate in accordance with the current market rates. This could imply that the loan may become cheaper or dearer than the fixed-rate loan, depending on the market performance and how the lender modifies your rate over the loan period.
Types of Personal Loans
There are several kinds of personal loans; both secured and unsecured.
Secured Personal Loans
You might need to get a secured personal loan if your credit isn’t up to par. That means you’d have to put something up as collateral for the Qaloan. It could be your savings, your car, or some other belonging.
Unsecured Personal Loans
Unsecured personal loans are more popular.
An unsecured loan implies that you don’t need to provide collateral to your lender. Let’s look at the following example to help us bring home secured vs. unsecured loans.
For instance, a mortgage is a secured loan. It is because the house you want to purchase with the mortgage acts as a collateral. If you default on your loan by failing to make your mortgage payments, your lender can take the house to recover the money they lent you.
For an unsecured loan, no collateral is taken if you don’t make payments. So, a lender protects themselves some other way, such as charging you a higher interest rate or running a credit check to know whether you’ve had a history of making your payments on time.
Uses of Personal Loans
Most often, you can use a personal loan for anything you want. In essence, you can use the funds to:
- Clear off medical bills
- Do high-cost purchases like buying electronics or furniture
- Consolidate debts from various credit cards
- Pay for a vacation
- Carry out renovations or home repairs
- Pay for a wedding
- Cover relocation costs
- Pay for divorce expenses or funeral costs
That’s to say, a personal loan can be used for anything you need whatsoever. But bear in mind that you’ll repay the money.
Advantages and Disadvantages of Getting a Personal Loan Online
Having known the basic things about these loans and ways you can utilize yours, you may be thinking about how you can get a personal loan. The interesting thing? You can get personal loans online sometimes and avoid a lot of stress.
Is this type of loan the best solution for you? Let’s consider the pros and cons.
It’s a no-brainer; it’s more convenient to get a personal loan online than to go physically to a financial institution to apply. Just imagine you’re comfortably at home filling out the details you need. It will be very convenient to pick up the right documents and present accurate information overall during your loan application.
You can digitally view your options and monitor your process when you apply for a loan online. A fast Google search is enough to fetch you different lenders so you can see their offers and analyze the details of their lending solutions.
Don’t go through the hassle of visiting an office to apply for a personal loan. In addition to saving your time, many online loans approve your application faster than traditional lenders.
Higher Interest Rates Than Some Loans
The increased convenience and speed while getting a loan online usually translates to paying a little more. It’s necessary to compare the interest rates of online loans with traditional ones. Work the math and conclude whether the added convenience is really worth paying for with the extra amount.
There are usually loans that come with penalties if you repay them earlier than the approved term. If you imagine you might pay off your loan early, forget lending solutions that carry a prepayment penalty.
It’s very pertinent to carefully study your potential lender properly and verify if they have a secure website before you apply for a loan online. Go through the company reviews and also ensure that you see an “https://” and not “http://” in the URL. The former has an “s” for “secured” at the end—meaning the site is secure whereas the latter doesn’t—meaning the website isn’t secure and your personal information won’t be protected.
How to Get a Personal Loan
Let’s now walk through the process of getting a personal loan.
Select Your Loan Type
First things first! You have to decide how much you want to borrow and how long you can comfortably repay the loan—which is subject to how much you can conveniently commit towards making the payments monthly. Again, you need to decide whether you want a secured or unsecured loan and a fixed or variable interest rate.
Check Your Personal Loan Rates
You can start shopping for loans the moment you know the details in the first step above. You can now contact the credit card company or bank and see if they give personal loans.
However, it will be to your favor if you do some googling. Quickly searching for “personal loan for (the required amount)” can fetch you options that will help you compare terms and rates.
Select a Lender and Apply
After you’ve seen the type of loan you need and the best available term and rate, you can now apply for your loan. The process may vary from lender to lender. Like we said, you can get a personal loan online. In that case, you’d often begin by completing a form online.
Other loan types will need you to visit the lender physically. You’d be required to come along with several documents such as proof of income. You can ask your lender the requirements for the appointment so you can prepare properly.
This is where those documents we talked about earlier will be useful. Personal loans generally require documents like:
- Proof of income
- Personal ID
- Bank statements
- Employment information
Accept the Loan and Start Repaying
If the information you submitted adds up and the lender gives you a loan offer, the next thing is to accept the loan. You’ll receive the funds, but also keep in mind that you need to start repaying without delay. If possible, set up auto-pay, or add a recurring reminder in your calendar to avoid missing any payment.
Tips When Applying for Personal Loans
Here are some tips to help you get a personal loan for your needs:
Ensure a Personal Loan Gives You The Best Deal
Keep in mind that the interest rate and loan term have a huge effect on the overall cost of your loan. To ensure that you select the loan option that will give you the most money, use a loan calculator to see how much interest you’ll pay based on the rate your lender offers.
Go Through the Fine Print
Generally, loans carry unpredicted, likely costly details such as origination fees and prepayment penalties. That’s why you must spend time reading the loan’s details before application.
Be Cautious about Credit Card Consolidation
Make sure to do your research if you’re looking for a personal loan to pay off a credit card debt or consolidate debt from a couple of credit cards. You may go for it If your personal loan will carry a way smaller interest rate than your credit card(s). But research and work the math before going this direction.
Fixed-rate vs Variable Rate?
Most people may want to go for variable rates. But remember that the rate may change as the market changes. So, choose a fixed-rate loan if you want to be unshakably sure you can make your payments.
Personal Loans with No Credit Check
Equipped with all this information, you can confidently apply for a personal loan. But you might be concerned about one thing—your credit score.
Not to worry! Some lenders will still give you loans even with your bad credit score. Such loans are usually short-term and provide less money, but can still get you the funds you need most times.
Payday loans, for instance, can provide you with a means to get a personal loan with no credit check.
Be informed while shopping for a loan. Like that, you’ll get the best loan for your particular needs.