A personal loan is a loan that you take out in your name. It is unsecured, which means that you will not pledge collateral as security for your loan. It also means that you do not have to pay back the loan with any specific schedule. It's a general-purpose loan that you can use at your discretion. That can include paying for a vacation, getting a new car, or paying for hospital bills.
A personal loan is an option for those who do not need to pledge collateral, but the loans come with restrictions. You will have to pay a specific interest rate, which may be higher than a credit card. You may also have to make a minimum or fixed payment each month. This type of loan is also unsecured, which means that you will not get any good collateral out of the loan, and your charges may not be as consistent.
In this article, we will be discussing everything you need to know about personal loans. Read on below to learn more.
Reasons for Getting Personal Loans
Personal loans can be used for just about anything, so there’s no definite reason why anyone might use them. However, there are some common reasons why people get them, such as:
Education - When you borrow money to pay for college, you have some options. If you get a personal loan, it may be better for you. Conversely, you can also take out a personal loan to pay off your federal student loans. However, personal loans don't come with the same tax advantages as federally recognized student loans, so it's recommended that you consult with a tax professional first before doing this.
Debt consolidation - Personal loans can be used to pay off debts, such as credit cards. You’ll only need to make a one-time payment at a lower interest rate compared to your other debts.
Important events - Let’s say you want to pay for a significant event, such as a wedding. If you don’t have sufficient savings, taking out a personal loan will help to cover expenses beyond what you can afford.
Unexpected expenses - Personal loans can come to the rescue if you need to pay for something unexpectedly, such as a home repair project, appliance replacement, or hospital bills.
Absence of Collateral
Personal loans don't require collateral because they're unsecured. In other words, your lender won't take away any asset of yours if you default. However, your lender may take further measures if they can't take your assets. Some of these measures include reporting your late payments to credit bureaus, hiring a collection agency, or filing a lawsuit against you.
How Much Can You Get from a Personal Loan?
Personal loans usually range from $1,000 to $50,000, and the amount you can get may vary due to different factors. Some of these factors include your lender, your income, and how well your credit score matches the lender's requirements. The better your credit score and the higher your income, the more money you can borrow.
It’s also worth noting that you cannot repeatedly borrow from the loan with a revolving credit card balance. As long as you're making regular payments, you reduce the amount that you owe. Your payments also don't open up more credit, and the credit line on the loan remains closed until after you've paid off the loan. If you want to borrow again, you'll need to reapply.
When taking out a personal loan, you can pick the length of your repayment period, which is usually 12, 24, 36, 48, or 60 months. A longer repayment period means lower monthly loan payments, but you'll have to pay more in interest over time as a result. Your interest rate can also be tied to your repayment period, such as shorter repayment periods typically result in lower interest rates.
If you have an open loan, other lenders might be less willing to extend your credit on the assumption that you’ll be less financially stable. So if you plan on taking out another loan, a longer repayment period might limit your ability to get approved for credit. Many personal loans also have penalties for paying off the debt early, so it’s recommended that you take out the shortest repayment term that you can get.
If you’re in a tight financial situation, taking out a personal loan will help because you can use it for whatever you need. Just remember to make repayments on time to have better chances of getting better rates and terms should you borrow again next time.
Mid-Town Finance Company offers comprehensive programs for personal loans in Birmingham, AL. We believe that everyone should have access to funds when they need them, which is why our rates are tailored specifically for clients. Contact us today to learn more!