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What Is a Personal Loan? A Guide on the Key Things to Know

Do you have savings ready if a big expense comes up? If not, you are not alone. Nearly 58 percent of Americans have less than $1,000 in savings.

Do you need money to consolidate debt or pay medical bills, or are you thinking about a large purchase like financing a wedding or updating your house?

Wondering what is a personal loan? If so, we’ve got you covered. Here are some things you should understand about personal loans.

 

What Is a Personal Loan?

You can borrow a personal loan for just about any purpose like some mentioned above. A personal loan typically has fixed interest rates with monthly installments. When you get the loan, you determine the length of the loan.

Your credit score, payment history, ability to repay the loan are factors used to determine your loan.

When to Consider Personal Loans?

Although you can get a personal loan for just about anything, it may not be financially wise to do so. It’s a good idea to use this loan to improve your finances or get the necessary funds. Here are some times you may want to consider these loans.

 

  1. Home Renovations

If you need to make improvements to your home, you may want to consider a personal loan versus a home equity loan. You won’t have to use your home for collateral for a personal loan.

  1. Debt Consolidation

High-interest credit card debt can rack up quickly. If you want to lower your payments and save money, you may want to consolidate your debt with a lower interest loan. You can have one structured payment to help you manage your debt.

  1. Personal Events

Weddings, funerals, and divorce are really expensive. It can be hard to save for these events. A personal loan can help you get the money you need quickly.

  1. Emergency Expenses

Like we mentioned above, most Americans do not have savings set aside for unexpected expenses. A personal loan can help you get funds in those stressful times like losing a job, unexpected medical bills, or an expensive car repair.

When You Should Rethink a Personal Loans

Even though you can get a flexible personal loan for about anything. You may want to rethink using them for vacations or other expensive wants. You should consider saving for these items or using a credit card and pay it off immediately.

 

How Do Personal Loans Work

Personal loans can be unsecured or secured, which means you put up something for collateral with a secured loan. If you default on a secured loan, the lender can seize your collateral.

Unsecured loans are not backed by collateral. Lenders look at your credit and financial history to determine if you qualify. Unsecured loans have a higher interest rate.

If you are worried about your credit, there are some personal loans that do not check credit. Click here to learn more about this option.

 

Before You Apply

If you are ready to apply for a personal loan, be sure to evaluate all your options. You should also shop rates with multiple lenders to make sure you are choosing the right loan. Check your credit to see if you can get a better rate, and make sure your credit report is accurate.

 

Ready to Get a Loan?

What is a personal loan? It’s a way to get needed funds. They can help relieve stress or help consolidate debt to help you pay it off.

Be sure you choose the best option for you. Looking for more ways to save? Search finance on our site and start saving today!

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