A personal loan is a type of credit that lets you borrow money and pay it back in installments over a set period of time. These loans can be used for a variety of purposes, including making a major purchase, covering unexpected expenses or consolidating debt. Personal loans can be either secured or unsecured, with each offering benefits and drawbacks that may be appropriate for different situations.
Before applying for a personal loan, it’s helpful to familiarize yourself with what it involves. This article will walk you through the process of obtaining a personal loan, including how to qualify, how the application and approval process works and what impacts your credit. We will also help you identify alternatives to personal loans that may better meet your needs.
Personal loans are available from banks, credit unions, consumer finance companies, credit-builder lenders and online lenders. You can typically find a wide range of rates, fees and terms for a personal loan, so it’s important to shop around and compare options before selecting a lender.
When you apply for a personal loan, the lender will review your application and credit history before approving or denying your request. If approved, the lender will provide you with loan terms and a list of required documents that you must submit to complete the loan process. Once the required documents are received, the lender will fund your loan and send you the funds, which you can use for any purpose you like.
Some lenders offer secured personal loans, which are backed by some form of collateral, such as your home, automobile or savings account. Secured personal loans generally come with lower interest rates than unsecured personal loans because the lender has an asset it can tap to cover your debt if you fail to make payments.
A personal loan can be a great option for many consumers, particularly those who are looking to make a large purchase or need extra cash to cover an emergency expense. Unlike credit cards, personal loans are closed-end loans that require you to pay the entire amount borrowed plus interest over a specific length of time. Moreover, personal loans can often be accessed more quickly than other types of credit, such as bank lines of credit or mortgages.
A personal loan can also be used to consolidate high-interest debt, which may be easier than trying to manage several individual bills. However, if you do not make your payments on time, the lender will report the unpaid amounts to one or more of the three credit bureaus. These late payments can significantly damage your credit score, but making timely payments can help improve it. Depending on the lender, you may be able to work out an agreement with your lender to restructure your loan or negotiate a payment plan. If not, the lender may turn your account over to a third-party debt collector. If you haven’t done so already, consider setting up payment reminders to help you avoid missed payments and the negative impact on your credit.