From mortgages to student loans to auto loans, there are many types of specific loans. But what if you need some money for an unexpected situation or for a special event? Well, that’s what personal loans are for. But what exactly are they, how can you get one and what can you use it for? Here is all you need to know about personal loans.
What is a personal loan?
A personal loan is a sum of money that you can borrow from a lender for pretty much anything you may need. You will then need to repay the said sum of money together with the interest. Interest rates for personal loans are generally fixed, meaning the percentage ill stay the same throughout the time it will take for you to pay off the loan.
The amount of money you can borrow through a personal loan and the interest rate you’ll pay are calculated based on your credit score. Generally speaking, the higher the credit score, the more money you’ll be able to borrow, and the lower the interest rate.
What are the types of personal loans?
There are two main types of personal loans: secured and unsecured loans.
Secured loans require an asset that will serve as collateral. This means you will need to offer something valuable, like real estate, automobiles, or your savings account, as a guarantee. The asset can be seized if you don’t pay off your debt.
Unsecured loans are not bound to an asset and are based mainly on your credit score. For this reason, unsecured loans tend to have a higher interest than secured loans.
What can you use a personal loan for?
You can use your personal loan for virtually anything. The most common uses of a personal loan are:
Debt consolidation: taking a personal loan to pay for your accumulated unsecured debts.
Major events: events like weddings, funerals, or moving to a new place can be a reason to take a personal loan. Even taking a vacation could be a reason for a personal loan.
Unexpected situations: these can be anything from home repairs or buying an expensive appliance that broke to medical expenses.
College: sometimes a personal loan may come with a lower interest rate than a federal student loan.
Where to get a personal loan?
You have a few options when it comes to getting a personal loan. These are the most common ones:
Banks: this is a common option with generally good rates
Lenders: companies that offer personal loans
Credit unions: like banks, they usually offer good rates
Online lenders: they can be a good option if you have a lower credit score
Before choosing where to get your personal loan, it’s useful to research the best options, especially when it comes to interest rates.
How will a personal loan affect your credit?
Taking a personal loan will lower your credit score temporarily. However, if you make all your payments on time, it will even help increase your credit score, which can be a positive thing in the long run.