What is a Personal Loan?

A personal loan is an amount of money that is borrowed from the bank. When you take a personal loan there is the decision to go three years or four years. Applying for a personal loan has gotten easier in the digital age but nothing is safer than applying in person at the institution you wish to borrow from. The uses for a personal loan are numerous but include: paying off debt, purchasing an expensive item like a new bedroom set, remodeling your home, and paying for medical expenses just to name a few.

When choosing a method of paying for the above mentioned expenses, keep in mind that personal loans are an installment debt. This means that you have a determined number of payments and each payment is the same. Furthermore, once the loan is paid off that is it, no more loan payments. With credit cards, they are revolving debts that continue to grow in balance and will still be around even if paid off.

To obtain a personal loan you have to have a job and a decent credit score. The job is self explanatory, the credit score is a little more in depth though. To secure a personal loan with a good interest rate your credit score needs to be over 600. A credit score of 650 is the national average. You can go to any of the credit bureau’s websites to request a free credit report.

$15,000 is the average personal loan maximum. The amount you can receive will depend on the guidelines for each loan, your overall credit rating, and your income. A personal loan can easily be confused with a line of credit. The difference is that a personal loan is an amount of money given to you by the financial institution, and a line of credit is an amount of money you have access to (credit line) of which you can use all at once or you can take only what you need when you need it.

When you request a personal loan you can get either a secured loan or an unsecured loan. The difference is in the names. Secured loan means that you have placed something worth the amount of the loan as collateral. If you fail to make the payments on a secured loan the bank can secure the collateral to get their money back. An unsecured loan just means that there is no collateral on the loan. You can expect to pay a higher interest rate on an unsecured loan because the risk to the bank is higher.

In choosing the term of the loan some things to consider are how much you are getting and how long you want to take in paying the money back. For larger amounts a term of 48 months is common, but for smaller amounts you can pay off the loan in two or three years. For very small loans you can pay them off in one year. The term should reflect how much you are comfortable paying each month. Keep in mind that the longer you take to pay back a loan the more you will pay in interest.

Personal loans have many uses and are a great way to consolidate your other debts. With a personal loan you can combine three or four monthly payments of 100 dollars into one 250 dollar loan payment. If this is the route you wish to take make sure that the debts you are consolidating cannot be used for anything else. Debt accumulation is a terrible cycle that has to end. The easiest way to do this is by securing a personal loan to pay off those debts and enrolling in a debt management course. You can use different methods of banking to make the payments on your personal loan.