Personal Loans

A personal loan is the same as any other loan in the sense that a lender gives a borrower money with the understanding the money will be paid back with interest. However, personal loans are unique because they require no collateral to be put up. They are unsecured loans, which means the borrower’s credit history and ability to pay the debt back are the only factors involved in approval for a personal loan; no assets are borrowed against. There are options for secured personal loans, where the item being purchased is used as collateral.

Another unique quality of personal loans is that they can be used for almost anything. While it is not recommended to take out a personal loan for a short-term need, it is likely the best option for when finances are needed short-term. This is because personal loans usually have fixed rates and payment plans, meaning you will pay the same amount every payment. Most often, personal loans are used for debt consolidation, large equipment purchases, or major events such as weddings or vacations. The best place to get a personal loan is through either a financial institution or an online lender.

Debt Consolidation

Let’s say you went to a major furniture retailer and bought the bed of your dreams. It cost you over $3000, but the retailer offered 18 months of interest-free payments. The catch is that after 18 months, if the bed isn’t paid off in full, you then owe retroactive interest. This means you’ll owe all of the interest that would have accumulated since day one, but you’ve got this. It’s all mapped out. Months go by and you’re paying on time.

Then life happens. Your car breaks down the day after you get a speeding ticket. Some hard financial weeks go by, and all of a sudden you realize you have over $1000 left to pay before the interest kicks in, and only three weeks to do it. You could get a credit card, and transfer all the debt over to it, but then, well, you’d have a credit card. Your family and friends don’t have the cash to lend you. What do you do?

Take out a personal loan. You can transfer the balance to a personal loan and avoid incurring all the interest. A personal loan can also be used to satisfy any outstanding credit card debt you may have, lowering your interest rate as well.

Equipment or Vacation (or anything else, really)

A personal loan is just that: personal. Provided you get approved, the money is yours. Common equipment purchases include home appliances, vehicles, highly-valued items (such as artwork). Also, due to the average wedding costing $30,000, many people take out personal loans to fund them. Vacations too can be pricey, and with the right pay back plan, a personal loan can cover the costs.

The truth is that you can use a personal loan for anything other than starting or funding a business. In that case, a business loan would need to be applied for.

Because personal loans do not require collateral, those without home ownership or a large amount of assets can be given them more readily. Generally speaking, the interest rates of personal loans are lower than those of credit cards. Plus, the fixed rate personal loans offer make budgeting and financial planning much easier.

It is strongly recommended to shop around for the best lender for you. Rates differ greatly between lenders, and some take credit scores more into account than others. Most of the time you are able to receive multiple offers from one application, especially with online lenders.

Do your homework, find a great rate, and know your credit score ahead of time so as to be able to apply to the most fitting lenders. Interest rates for personal loans are usually higher than those of mortgages or car loans, so keep that in mind if buying a house/car. Other than that, apply for a personal loan today and either consolidate your debt, buy what you need to buy, marry that lover of yours, or go to Fiji. The choice is yours!

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