People have mixed feelings about personal loans. Their interest rates can indeed be high at times, but on the other hand, they are a perfect alternative for bank loans. Every year millions of the US citizens are using them. It proves that they are a viable option for all people who want to borrow money. Learning from experienced professionals like Gordon Simmons Service Credit Union is a great way to make sensible financial decisions. In this article, you’ll find all the crucial things that you should know about personal loans.
How does it work?
A personal loan is, of course, type of instalment loan. It means that you receive a particular amount of money and pay it back with interest rate. When you pay off your debt together with interests, you’re free, and your account is closed.
Where can you get it?
It’s possible to get a personal loan in the bank, at credit unions, peer-to-peer lenders or consumer finance companies. But there is also a more convenient way to acquire it. Some companies allow you to take a personal loan online. It’s straightforward and much faster. For example, check out this website. The only thing that you need to do is fill in the form, and your loan process will be started. You don’t even have to leave your home, and in less than a week, you’ll be able to spend the money on whatever you need.
Unsecured and secured loan – what is the difference?
You’re able to get two types of personal loans. Secured loans require collateral. What is it? It’s the asset that you need to provide to a lender to get a loan. It’s usually required in mortgages or auto loans. If for some reason you’re not able to pay off your debt, then the lender can claim your property as payment.
There’s also another type – unsecured loan. It doesn’t require you to give any collateral at all. However, only people with good financial history can get it. In general, unsecured loans have slightly bigger interest rates.
Why do people go for personal loans so often?
Sometimes lenders take legal actions against people who spent their money on something else than they promised. When you take a personal loan, you don’t have to worry about it at all. You are free to spend this cash on anything you want. Undoubtedly, another great advantage of personal loans is the fast processing speed. You can get the money you need in a matter of a few minutes, but usually, it takes around a few days.
As you can see, it’s much faster than banks and credit unions processing time which can often take weeks. On top of that, the requirements to get personal loans are much easier to meet. That’s why most people are able to use them.
What can personal loans be used for?
People’s needs are different, and you can use borrowed cash for pretty much anything you want. Some people spend their money to pursue dreams – they go on holidays of their dreams, buy cars which otherwise they wouldn’t be able to purchase or organize weddings. Of course, there’s nothing wrong with that. However, some reasons are financially better than others.
One of the best reasons to take personal loans is to consolidate your debt. When you have multiple dues, it’s a good idea to consolidate all your debt into one. It’s often possible to change interest rates to your advantage – in the end; you’ll have to pay less.
A lot of people decide to go with personal loans to pay for medical bills. Costs of medical care and treatment can be very high, and even if you have savings, they might not be enough. In such cases, a personal loan is a perfect solution to deal with a difficult situation.
Interest rates and fees explained
Of course, lenders lend money to people who need it in order to earn more. There are different types of loan fees, and you should take them into consideration before you decide to choose a loan. Of course, the most infamous and important fee is interest rates. They depend on the lender, but usually, their level is between 5% to 35%. Typically, they are lower for people with good credit scores.
It’s an unusual situation when one is able to pay off the debt earlier. You’d think that it’s a great situation, and the lender should be happy because he got back all the money. Unfortunately, it doesn’t work this way. If you decide to cover all your debt early, you’ll get punished for doing so. It’s because the lender lost some interest, that he would normally be able to get. Also, you have to remember about some smaller payments, for example, the origination fee. It is a payment that covers the costs of loan processing, and it’s between 1% to 5% of the total loan amount.
Of course, the best option is not to borrow money at all. But, sometimes situations force you to take a loan, and that’s when you have to consider which one is the best for you. Contrary to popular belief, personal loans aren’t that bad, but people don’t know much about them. Hopefully, with all the knowledge that you now have, it’ll be easier to choose the right loan type for you.