Personal loans are growing in popularity day by day. It is the fastest growing type of consumer debt. If you have never applied for a personal loan, you may have already asked yourself the question: what are personal loans used for?
We have all been in situations where we have found ourselves in need of money. When you have an unforeseen expense, want to consolidate debt, or want to make a large purchase and have no money up front, you may have to go into debt to cope. A personal loan can help you if you need to borrow a specific amount.
There are many types of personal loans, and the type of loan that is right for you will depend on your situation. We will discuss some of the options to consider.
Sign up for the Paterson newsletter
Our newsletter provides local news that you can trust.
You have successfully subscribed to the TAPinto Paterson newsletter.
Most personal loans are unsecured which means they are unsecured. Loan amounts generally depend on your credit score. If you have excellent credit, you will be able to borrow more.
Most lenders charge between 5% and 36%, depending on your credit score. Since the lender is taking a risk and has no property to repossess when you have trouble making payments, they may charge higher interest rates. An unsecured personal loan can be a good option if you have good or excellent credit and want a regular monthly payment.
Secured personal loans are secured by collateral, such as a car, house, savings account, or other assets. In the event that a borrower defaults on the loan, the lender can seize the asset to recover all or part of the amount owed. From the lender’s point of view, secured loans are less risky.
Secured loans allow them to offer lower interest rates, making secured loans the cheapest types of personal loans available. Since the loan is asset-backed, lenders can be more flexible when it comes to credit rating requirements, making a secured loan one of the best types of bad credit personal loans.
A co-signed loan is a personal loan, ie secured unsecured, where more than one party guarantees to repay it. If you have no credit history or have bad credit, lenders may ask you to have a co-signer, who will assume and repay the loan in the event of default. A co-signer is a form of insurance for the lender.
Having a co-signer can improve the chances of getting approved and possibly offer better loan terms. The benefits of taking out a co-signed loan go to the borrower for more money and better terms. The co-signer, on the other hand, can have some drawbacks. The loan will show up on the co-signer report and delayed or missed payments can hurt their score.
Before taking out this type of loan, carefully review the terms and understand that the financial risk associated with it can potentially hurt your relationship.
If you have debt in more than one place, a debt consolidation loan allows you to combine what you owe into one loan with a manageable monthly payment. These types of personal loans can make it easier to manage your finances and potentially save money by reducing the amount of interest you pay. You will only have one payment to make each month and one lender to process rather than several.
If you want to take out a debt consolidation loan, consider whether it will save you money overall. Start by shopping around for the best rates and terms. You’ll also want to check to see if your lender will charge you for clearing your original debts before their respective terms end. If so, determine if the savings you would make by taking out a debt consolidation loan outweigh the cost of prepayments.
Many consumers are also tempted to back up balances on their credit cards and other loans after securing a debt consolidation loan, making this loan option ideal for those who have the financial discipline to control their debt.
Personal line of credit
A personal line of credit is a form of revolving credit. Unlike an installment loan, which involves paying off a lump sum on monthly payments, a lender gives a borrower access to a line of credit up to a certain amount that they can borrow as needed. The lender only charges interest on the amount borrowed.
A personal line of credit is useful when you need to cover fluctuations in income or unforeseen expenses such as medical bills. Some lenders may allow you to set up a line of credit linked to your checking account to cover overdrafts. Other lenders offer a secured asset-backed line of credit.
To apply for a line of credit, you need a good credit history and an excellent credit rating.
What you need to know before applying for a personal loan
Before you start shopping for a personal loan, spend some time exploring your options. Familiarize yourself with the qualifications you will need to complete and the documentation you will need to provide. Knowing this information in advance can improve your chances of qualifying and can help streamline the application process.
Before you apply, look at the interest rate and calculate the cost of the loan. The Federal Reserve estimates that the average 24-month personal loan has an annual percentage rate (APR) of 9.5%. The APR includes the interest rate and fees charged by the lender expressed as a percentage.
You also want to determine how much time you have to repay the loan. Most personal loans offer terms ranging from six months to seven years. Remember, if you choose a longer term loan, your monthly payments will be lower, but you will end up paying more in accrued interest. Short term loans offer lower interest rates.
When it comes to personal loans in Bergen and Passaic County, Greater Alliance makes it easy for you. Call our financial experts today to walk you through the loan application process at 201-599-5500 ext 280 or visit our website for more information. We also have other blog posts that you will find useful. We’re committed to helping you take charge of your finances.