Over 25% of Americans say that they would not be able to cover a sudden expense of just $400 without having to sell something or borrow the money from friends and family members.
If you’re among them, we understand that you often don’t want to have to part with special personal possessions or have to let the people in your life know you’re struggling.
Plus, you may be facing expenses that are much greater than $400.
You’ve tried to balance your budget and look for things to cut as best you can, but the truth is, you just can’t come up with the cash you need.
A personal loan is the solution you’ve been looking for.
But how do personal loans work, and what kinds of things can they help you to pay for?
Consider this your ultimate beginner-friendly guide to applying for a personal loan.
What’s a Personal Loan?
Before we go into further detail, let’s cover the personal loan basics.
A personal loan is an unsecured loan, which means that in most cases, you don’t need to put up any kind of collateral in order to get approval. (There are rare exceptions to this rule, so be certain you verify that no type of collateral is needed with your individual lender.)
In lieu of using collateral like your car or your home to help a lender decide if you qualify for a general purpose loan, a lender will instead look at your current income, verify your employment/source of income, and the balance of your checking and savings account.
This is especially excellent news for loan applicants that have a low credit score, or who don’t have much of a credit history at all.
Most personal loans don’t even require a credit check in order to approve an applicant.
Personal Loan Repayment
Personal loans, unlike social security loans, are not paid out to the lender in installments.
Instead, you’re given the amount of money you’ve been approved to borrow in a lump sum (all at once.)
While this means that you have access to a large amount of cash at one time, you need to be certain that you can actually afford the repayment terms to avoid making a big financial mistake.
How does the personal loan repayment process work?
The good news is that you’ll pay a fixed monthly sum made up of both principal and interest every month. This makes it much easier for you to know exactly how much the loan will cost you each month, so you can budget accordingly.
You’ll need to take a close look at the unique terms of the loan, as well.
In addition to examining the fees and interest rates, you’ll need to look at the length of the loan.
Do you feel confident that you’ll be able to pay for the entire cost of the loan within the specified time period, whether that’s one year, five, or ten?
If not, then you should likely consider taking out a smaller amount of money.
Pay attention to the interest rate associated with the loan, as well.
Personal loans have a fast approval time, but the fact that they don’t require collateral often means they come with higher interest rates than you might expect.
Ensure that the interest rate doesn’t make the loan cost far more than it’s worth. Above all, ask your lender what you can do to lower that interest rate.
This is also why it’s a smart move to get quotes from multiple lenders before making your decision.
What Types of Things Can You Finance with a Personal Loan?
Another huge benefit of applying for a personal loan is that lenders don’t require you to explain what you plan on using the money for.
This can be both a blessing and a curse to borrowers.
You need to be certain that you’re applying for the loan for the right reasons.
For example, covering the expense of a funeral, paying for medical treatments that can’t wait, or even consolidating your existing debt are all legitimate reasons to borrow.
Borrowing over $10,000 so you can treat yourself to a boutique hotel, designer clothes, or even elective plastic surgery?
While these things can be appealing, they’re not the best reasons to go into debt.
Other common expenses that money from a personal loan can help to cover include business startup costs, wedding expenses, and your daily bills/expenses.
It’s easy to apply for a personal loan, and in most cases, you can do it online.
All you’ll need to provide is your address, an active checking account, proof of residence, and a few other small details.
Need to Explore Your Other Lending Options?
Now that you know about the basics of a personal loan, you’re much better prepared to decide whether or not it’s something that works with your current financial situation.
Are you concerned that a personal loan isn’t the right choice for you?
There are tons of other lending options for you to consider.
Perhaps something like a payday loan, a business loan, an auto loan, or even simply refinancing your mortgage would better suit your needs.
Interested in learning more about your lending options? Curious about the best ways to balance your budget every month?
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