For starters, they’re great when you need a flexible way to borrow money. Personal loans have been around for a while, but online fintech lenders have reinvigorated this form of financing.
As banks and credit unions scramble to offer more loan products and match the convenience of the fintechs, terms and interest rates are getting more competitive. Whether you need funds for a car, dental work, or an emergency, a personal loan can be a godsend.
A personal loan is money borrowed from financial institutions or online lenders and paid back in fixed installments, with interest on top. Most personal loans are “unsecured,” meaning you don’t need to put any money down or offer up collateral like your house as you would with a home equity loan.
Personal loans are increasingly popular because they can be used for practically anything. While the number of mortgages dropped considerably over the last decade, unsecured loans rose dramatically.
A personal loan is clear-cut. There’s a beginning and an end. Let’s say you want to consolidate debts, such as multiple credit card debts and student loans, into one. You get a personal loan for $8,000. In most cases, you’ll have two to five years to pay it back in monthly installments at a fixed, simple interest rate. Payments will be the same every month for the life of the loan, allowing you to know exactly what you owe and how long you have to pay it back.
Because they’re typically unsecured, personal loan interest rates may be higher than for mortgages or auto loans. If you default on one of those, the lender can foreclose on your home or repossess your ride. A personal loan lender takes on more risk.
Interest rates on personal loans can start as low as 5.99% APR and range up to 47%, depending on factors like credit history, income, and others. Banks and fintech lenders typically issue personal loans ranging from $500 to $50,000.
Co-signed loans: Enlist a co-signer with better financial record to improve approval chances, but consider repayment risks carefully.
Debt consolidation: Combine multiple debts for simplified repayment at lower interest rates.
Each credit inquiry slightly affects your score, staying on your report for two years. Avoid repeated inquiries by rate-shopping within a 45-day period. Repaying a personal loan in full and on time improves your financial standing for years to come.
Rates vary widely, ranging from 5.99% to 47%. Best rates are awarded to borrowers with excellent credit scores, while lower scores may benefit from postponing loans to improve creditworthiness.
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