Personal loans can be very helpful in certain financial situations when used correctly. Though the most common uses are debt consolidation and large purchases, personal loans can be used in other ways. This is a quick informative guide to what personal loans are and how they can be used:
What are personal loans?
There are two types of personal loans; secured and unsecured. A secured loan requires collateral to back the loan while an unsecured loan does not. However, secured loans tend to have lower interest rates due to the loan also being backed with collateral.
Like with all loans, borrowers with higher credit scores will have an easier time getting approved and receive more favorable rates. Personal loans have fixed interest rates and are paid back over a period of usually 2 to 5 years.
Now, let’s answer the question: What can personal loans be used for?
Consolidating debt with a personal loan is one of the most comment use cases. This involves consolidating multiple debt balances into a single debt with a single monthly payment to manage. For those who are trying to reduce credit card debt and improve their credit score, combining multiple debts into one can simplify the process over the long run. In addition to a single monthly payment, it is possible to get a lower interest rate and save on interest expense and pay off debt faster.
Second to consolidating debt, using a personal loan to make a large purchase is common. Car and boat loans are simply secured personal loans with the care or boat being purchased set up as the collateral. Still, other expensive household items and remodeling can be financed with personal loans.
Unfortunately, large unforeseen expenses, that would be impossible to pay for, catch people by surprise. Medical, funeral and sudden moving expenses are just a few large expenses that can be hard to pay for without some form of credit or loan.
A business owner may need extra cash to get through the quarter or a new piece of machinery, both of which a personal loan can be used for.
Before you shop around
Before you shop around there are a couple of things to consider. First, if you have bad credit, getting a cosigner with good credit can potentially help you get a better rate. Second, consider getting a secured loan and using your car or bank account as collateral which may also help you get a lower rate. Also, if you have time to build your credit first, do it. It will help you get a better rate and make the approval process easier. And last but not least, if you are borrowing to consolidate debt and it means you will get out of debt more quickly great, continue with what you are doing. If not, consider your debt relief options.
Where can I get a personal loan?
If you decided a personal loan is right for you to make sure to shop around. Talk to multiple lenders and find the best rate and most favorable terms for your personal financial situation. It is now easier than ever to get a personal loan with many online lenders available at the click of a mouse. Here is a list of the top online lenders to compare offers from.