A personal loan is a specific type of loan an individual can apply for to pay for anything they need at that moment. Some people apply for personal loans because they’re living paycheck to paycheck and are unable to afford certain expenses, such as unexpected car repairs or medical expenses. Some people apply for these loans to consolidate the debt they have, and others choose to use the money to make improvements to their homes all at once instead of handling the repairs little by little when they have some extra cash to do so.
Although they’re quite convenient at times, personal loans aren’t always the easiest loans to get. The approval process varies and may depend on your current credit score.
They’re Not Secured Loans
When you apply for a personal loan, you’re not applying for a secured loan. Because they’re not secured, you wouldn’t have to worry about putting something up as collateral, such as your home, vehicle, or other valuables. They’re often harder to obtain simply because they’re unsecured loans.
If you couldn’t make a payment, you wouldn’t have to stress out about the lending company taking away some of your possessions due to your failure to pay. However, the company could still send you to collections, which would cause your credit score to plummet.
It’s Not the Same as a Credit Card
Although you can do what you want with both a personal loan and a credit card, these two things are not the same. When you have a credit card, you can make a payment that lowers your balance and gives you access to those funds on the credit card all over again. As a result, you could get into a vicious cycle of paying off some of the debt and then using the card all over again, getting deeper into debt.
It’s quite different with personal loans. You can borrow a fixed amount at one time and you’ll need to make monthly payments to pay back what you’ve borrowed. However, you won’t have access to the funds you’re paying back like you would with a credit card. In fact, you won’t have access to any extra cash until you’ve paid the loan off and then choose to apply for another personal loan.
If you’ve fallen into that vicious circle of making a payment and then using the credit card again, taking out a personal loan may be a better solution for you when you need some extra cash.
Interest Rates Will Vary
Interest rates are added to all personal loans, but the percent of interest charged varies tremendously. The lenders take several different factors into consideration before offering a loan with a set amount of interest included. Some of these factors include the total amount you’re requesting and the type of credit you have. If you have a high credit score, you’re far likelier to get approved for a loan with low-interest rates.
Those with bad credit often end up dealing with higher interest rates. The higher interest rates are often charged because the lenders are taking a bit of a risk by choosing to provide a loan to someone who doesn’t have the greatest credit score.
It’s Something That Shows Up on Your Credit Report
If you’re going to apply for a personal loan because you could use the extra money at the moment, it’s important to know that it will show up on your credit report. If you get denied for one loan, you could always try to apply for a different loan, but you shouldn’t fill out too many applications at once because that will cause your credit score to drop quicker than you can even imagine.
Make sure you’re applying for a personal loan with a legitimate company. Unfortunately, there are some scams out there and you don’t want to end up becoming a victim of those scam artists who would use your information to their advantage rather than helping you out by providing you with the loan you need. As long as you’re doing your research on the lending companies in advance, you should be able to find a reputable company that might give you the personal loan you’re requesting.