Personal loans are a type of unsecured loan, which means that they do not require collateral. Collateral is something of value that can be used to secure a loan, such as a car or home. If you default on an unsecured loan, the lender cannot take your collateral.
Personal loans are typically used for large purchases or to consolidate debt. When you take out a personal loan, you will agree to repay the loan over a certain period of time, with interest.
The term of the loan can be anywhere from one year to seven years, and the interest rate will be based on your credit score. The higher your credit score, the lower the interest rate you will qualify for.
The amount that you can borrow with a personal loan is typically between $500 and $100,000. But some lenders will allow you to borrow more, depending on your income and credit history. For example, if you have a good income and a low debt-to-income ratio, you may be able to qualify for a personal loan of $150,000.
The best use case for personal loans is to consolidate debt. If you have multiple debts with high-interest rates, personal loans can be a good way to consolidate those debts into one monthly payment at a lower interest rate. This can save you money in the long run and help you get out of debt faster. Another good use case for personal loans is to make a large purchase. If you need to buy a car or make a home improvement, personal loans can be a good way to finance those purchases. Just be sure to shop around for the best interest rate and terms before you take out a personal loan.
The biggest risk of personal loans is that they can put you in more debt if not used wisely. If you consolidate your debts with a personal loan and then continue to spend without a budget, you could end up in more debt than you started with. The same is true if you use a personal loan to make a large purchase without first saving up the money.
- Proof of identity
- Proof of residence
- Proof of employment/income
Can be used for a variety of purposes, Builds credit, Lower interest rates, and Easier to qualify than other loans.
Could harm your credit score, Origination fees, Prepayment penalties, the Debt is a liability.
There are two main types of personal loans: fixed-rate and variable-rate:
- Fixed-rate personal loans have an interest rate that remains the same throughout the life of the loan. This makes it easy to budget for your monthly payments.
- Variable-rate personal loans have an interest rate that can change over time, depending on the market. This means that your monthly payments could go up or down, making it more difficult to budget for them.