Do you have huge credit card debt? How about unexpected medical bills or a leaking roof? Are you due for a much-needed vacation?
If you find yourself relating to any of those situations, it may be time to learn how to take out a personal loan. Some people only need a small personal loan, while other’s need something a bit larger.
No matter how much money you need to borrow or your situation, there is likely a personal loan out there for you.
What Is A Personal Loan?
First, let’s make sure you understand what it is you’re asking for.
A personal loan is a specific amount of money you borrow for a set term. The term of the loan is how many months or years you have to pay back what you borrowed. You pay it back in monthly installments, with interest, over the life of the loan.
Interest and Fees
Let’s talk a bit about interest. This is what the loan will cost you over the term. Interest rates are figured in percentages, and they are based on your credit score. The better your score, the better your interest rate will be.
Besides interest, there could be other fees involved in processing your loan:
- Origination fees are for processing the loan.
- Prepayment penalties are charged if you pay the loan off early.
Check the fine print! Make sure you understand any fees you will be required to pay when you take out a personal loan.
Unsecured vs. Secured Loans
Personal loans are usually unsecured. There’s no collateral, though you will likely have a set purpose for using the money.
That’s different from something like a car loan, which is secured by the property it was used to buy.
Why Take a Personal Loan?
If you have high-interest debt, a high cost of living, low income or are a homeowner, you can benefit from a personal loan. Actually, the possibilities for using a personal loan are endless!
There are many reasons you might need a personal loan, but here are some of the more common ones.
Pay Off High-Interest Debt
You can use personal loans to pay off high-interest debt. Credit cards are the number one source of this type of debt. The average American has more than $5,000 in credit card balances. Those cards usually have very high interest rates, ranging anywhere from 15% to 20%!
Consolidate your credit cards into a single personal loan. You’ll send only one payment each month, simplifying your life. Plus, personal loans can offer a much better interest rate. This saves you money over the long run.
A personal loan might offer enough money to help you out of a financial crisis. Unexpected expenses, like car repairs or illnesses, can make a mess out of your budget. If you don’t have much money coming in, the smallest new expense can drain the bank.
Fixed and Low Income Support
Pensioners and retirees might take out a personal loan to help with living expenses. A hospital stay or sudden increases in prescription drug costs can be too much for a fixed budget to handle. Despite having a fixed income, there are personal loans for people in this situation.
College students spend most of their income on books and tuition. If you’ve been to college, you know it’s hard to find money for living expenses after you pay $300 for a single book! College students can use personal loans to help with day to day living costs, school fees, and supplies.
Home Repairs and Renovations
Homeowners have big dreams. Is yours is a kitchen remodel, finishing a basement or replacing old flooring? Buying materials and paying for labor are expensive and need to be paid for on a tight schedule.
You might need extra money for things you don’t expect, like leaking roofs and broken appliances. Those expenses may not be covered by insurance. You might need to pay some costs up front.
Big Life Events
Thinking of getting married? Are you having a child or sending one off to college?
Congratulations! These are moments to celebrate, but you can bet those expenses are outside the budget. You may be required to pay deposits or tuition expenses up front.
Go on a Vacation
Does that sound crazy? Well, it shouldn’t.
Taking out a personal loan for a vacation is an investment in your well being. Vacationing is one of the best ways to improve your productivity at work.
If you work a lot of hours, you might need a trip to reconnect with your family. Consider how long it’s been since your last vacation. Then, why not consider taking a personal loan for that break you so desperately need?
What Do I Need To Know Before I Apply?
Here are a few things to know before you apply for a personal loan. Think about your purpose for the loan and then consider the following:
Know Your Budget
I bet you’re wondering how much personal loan you can afford, right? Great question!
It’s a good idea to sit down and make a budget. Include all income and expenses you have in a month. Don’t forget things that vary, such as food and clothing.
You’ll need to make a payment each month on your personal loan. How much money is left over after you pay all your bills? Is it enough for a loan payment?
Your Credit Score
Do you know your credit score? Your credit score is a summary of all the loans you’ve had and how you paid them. It helps lenders decide if they should lend you money, or not. The higher the score, the better!
Here is a general guideline for how your scores rate:
- Excellent: 720 and higher
- Good: 690-719
- Fair/Average: 630-689
- Poor: 300-629
A lot goes into how your credit score is calculated, but essentially you are scored on how often and how much you borrow and whether you pay it off on time.
Keep in mind that your personal loan will be a new account, and your credit score will take a hit from opening it. Any time a lender pulls your credit for a loan application, your credit score will go down by a few points. This can also affect any mortgage applications you are working on.
That doesn’t mean shouldn’t apply, it’s just something to be aware of.
Check the Requirements
Lenders require you to meet certain qualifications to get a personal loan. You’ll need to be over 18 years old and have a consistent income. You also need an established bank account.
Learn more about those qualifications and how to take out a personal loan from a bank.
How To Take Out A Personal Loan
To apply for a personal loan, you’ll need to fill out an application. These days, applications are taken online. Though, you can still find lenders that take them over the phone, too.
Have your personal information ready before you start. Most applications require the following:
- Your Government Issued I.D. – Drivers License, Passports,
- Your Current Address
- Your Salary Information – Pay stubs and bank statements that show your income for verification purposes
- Job History – Name of organization, address and phone number
- Current Debts – Mortgages, credit cards and other loans
Fill out the entire application, answering each question honestly. The better detail you give, the better your lender can work for you.
After you submit your application, you will need to wait for approval. This can be as long as a week, but you will receive an answer. Either you will be approved or denied.
If approved, you will be given instructions on how to close the loan.
If denied, you will be given an explanation. Keep in mind that you can use that information to build your credit for future applications.
Benefits of Using Personal Loans
Taking out a personal loan is something anyone can benefit from. Here are a few reasons why you may benefit from a personal loan over other loan options:
- You struggle to get approved with other lenders
- You need to improve your credit score
- You could have access to money quickly
- Simple application process
What Are You Waiting For?
You know how to take out a personal loan and we can help! It can be the answer to finding the extra money you need for sudden, unexpected costs, improving your home or for taking that dream vacation.
We can help you improve your situation, and we help match you with a lender that meets your specific needs.
You need a personal loan, and now is a great time to apply! Please request your loan via our online application, right now.
Need help? You can also contact us with any questions or concerns you may have.