More and more people are beginning to take out personal loans. According to TransUnion, personal loans were the fastest growing loan product in 2016 and increased by 4 million from previous years. Yet, what exactly is a personal loan? Is it right for you? What’s the best way to get one? Check out below to get all your questions answered!
What exactly is a personal loan?
A personal loan is a loan taken out for a personal reason – that is to say, it isn’t specified for a particular reason like an auto loan. Personal loans provide a great deal of freedom if you’re in need of some cash. Some examples of what individuals use personal loans for are consolidating or refinancing high-interest debt, large home renovation projects, large purchases, funding a small business purchase or establishing a business, medical procedures, or weddings and vacations.
Is personal loan right for you?
Individuals often use personal loans to save on the interest that would accumulate on a credit card. In essence, they’re a flexible way to fund a big expense but there can be complications. There are two types of personal loans: secured and unsecured. Most of the time personal loans are unsecured which means you don’t have to put up collateral, such as your car. However, in the case that you do put up a large asset such as your car for collateral, you risk defaulting on the loan and losing your car in the process. In these cases, consolidating personal debt to save on interest is likely a solid financial choice because the interest you’ll save is great. Still, funding a wedding or vacations with personal loans isn’t the smartest way to go. These are non-essential and the risk of defaulting on a personal loan can have jarring consequences for both your assets and your credit score.
What’s the best way to get quickly approved for a personal loan?
When thinking about personal loans, your bank likely comes to mind. Yet, they aren’t the only lender for personal loans. Big lenders (banks) don’t make a lot of money on personal loans, and thus they don’t have a lot of incentive to offer competitive interest rates. As such, you might consider looking at a credit union which offers lower rates and fees because of its non-profit status. There are also a number of online and peer-to-peer institutions that offer personal loans at competitive rates. Do your research to ensure you’re getting a good deal before you commit. Once you find the place that’s right for you, you’ll go through an application process where they’ll check your credit, ask for information such as your income, employer, primary residence, and your debt-to-income ratio. Have this information ready to speed up the process.
You’re not the only one thinking about a personal loan with their ever-increasing popularity. Deciding if one is right for you comes down the purpose of the loan and the terms of the agreement. Think through the questions above and you’ll be a step ahead in figuring out the best financial decisions for you!