Personal Loans: What Are They & How Do They Work?

A personal loan is just that, a loan for personal use. It is a type of loan that typically is unsecured and you borrow a set amount of money, at a set rate, for a set amount of time. You would have specific terms for your personal loan to repay over a certain amount of time, on a monthly basis. There are unsecured loans and loans that have collateral, which is referred to as secured loans. Typically unsecured loans yield a higher rate but are more convenient and easier for people to obtain. Personal loans can be used for anything and everything that you can imagine. Ultimately, the decision is yours. Typically terms for personal loans tend to range from 12-60 months. Once your loan is paid in full, the account is closed.

Situations that may arise to have someone looking into a personal loan tend to vary. However, the most common are along the lines of to make a large purchase, home remodeling, emergency situations with expenses, money for moving, consolidate debt, paying off student debt with high-interest rates, taking a dream vacation, and to purchase a vehicle. Personal loans are referred to as installment loans. You would receive the lump sum upfront and you would repay the amount over time, plus interest. You have the option to pay it off as you go on a monthly basis but you are able to pay it off in full at any moment. Of course, please make sure to check the terms of your loan to verify there are no fees associated with paying off your loan before its maturity date. Each loan and lender provide different terms and options so its best to verify all the details of your loan prior to receiving it.

Most personal loans have a fixed rate. This means that the rate does not fluctuate and your payments are fixed and never change. Occasionally you may have a variable rate available but then that means your monthly payment fluctuates and changes from month to month. The rate you qualify for mainly depends on your credit score. Rule of thumb is that usually the better your credit score is, the better your rate is. You want to make sure to stay current on your monthly payments so that you are not subject to pay any late fees if you start falling behind on your scheduled due date.

With all of that being said, the choices are endless with what you can choose to do with your personal loan. Please make sure to do your research so you can get the best possible loan that satisfies your unique situation and needs. The possibilities are truly abundant and the benefits of such a loan speak for themselves.