Not having enough money in your bank account is a feeling most of us are likely very familiar with. But what do you do when big emergencies arise, and you are truly strapped for cash?
In certain circumstances, you can take out a personal loan. This offers a fast cash solution to help you fund your plans in the short term.
If you want to learn how to get a personal loan online fast or simply want to understand more about what it is, you’ve come to the right place!
What Is A Personal Loan?
A personal loan is essentially money that you borrow from a bank or another financial institution to plug a cash flow leak. They require consistent monthly repayments over a set repayment period.
The amounts vary considerably — anywhere from around $1,000 to $50,000 (or even more) with an average interest rate in the range of 3 to 36 percent.
Some of the main things that are considered by a lender when applying for a personal loan (and calculating the interest rate) include the following:
- The borrower’s credit history
- Loan tenure
- Loan amount
- Borrower’s occupation
Types Of Personal Loans
A lot of available personal loans operate similarly to one another. However, there are some key differences that you must be aware of before you start considering sending in your application. We have outlined these for you below.
Unsecured Personal Loans
The vast majority of personal loans are unsecured. In layman’s terms, this means that you don’t need to note down any collateral to qualify successfully for one of these types of personal loans.
Usually, you will also receive a lump sum of cash which allows you to repay your loan amount via fixed repayment amounts over a set period.
These loans come with much higher interest rates as they are much riskier for the financier. Simply put, the lender does not have the luxury of collateral to fall back on if payments are missed.
Secured Personal Loans
On the other hand, secured personal loans do require you to put down some collateral to qualify. However, this doesn’t necessarily need to be cash. You might have the opportunity to use other big assets like a car, home, or even a boat (if you own one, of course!)
If you were to miss multiple payments and fall behind on your agreed repayment schedule, a lender has the authority to seize the assets that you note down as being collateral. As a result, they are viewed as being far less risky on behalf of the financier.
It also tends to carry a much lower interest rate.
This personal loan variation helps you combine your debt and pay it off all at once using funds that have been directly obtained from a personal loan.
Taking out a single loan to pay off another one might sound counterintuitive, but if it is done correctly, it can provide a more effective way of paying off debt and freeing up cash flow. This reduces the chances of entering the cycle of borrowing considerable monetary sums to simply make ends meet.
Consolidation loans often provide lower rates than the 18% typically offered by a credit card. However, personal loans usually function on a fixed financial scale, whereas credit cards work with a reduced balance.
Why Do You Need A Personal Loan?
Personal loans are an easy way of financing personal needs. They are flexible and diverse, meaning you can spend your funds on just about anything you want to, ranging from a dream vacation to a whole host of home improvements.
However, there are some common uses:
- Debt Consolidation: This is one of the most common reasons people take out a personal loan. By consolidating your debt via a personal loan, you’re combining all outstanding debt balances into a manageable monthly sum. Grouping debt also makes it easier to work out a repayment plan without becoming overwhelming!
- Expensive Events: Personal loans are often taken out to cover the costs for weddings, honeymoons, a party, or even dream vacations. Once the event is over, the individual gets to experience the benefits of repaying a loan over time.
- Self-Investments: Personal loans are great for making educational purchases like an online course or a workplace certification. You might even want to use it to pay for procedures, including cosmetic surgery or dental implants.
- Home Remodeling: Homeowners can use personal loans to upgrade the home or complete necessary repairs, such as redoing the electrical wiring or fixing the plumbing. Unlike other home equity products, a personal loan often doesn’t require you to put your home as collateral since it is usually unsecured.
- Emergencies: If a surprise medical bill occurs or you need to cover the cost of some serious home emergencies, such as a leaky roof, a personal bill will fit the bill. It’ll be sent to your account quickly and easily and can support you to give you the peace of mind you crave.
Whatever you do, think carefully before you take on the responsibility of a personal loan!
If you have the time, we’d recommend saving up instead of opting for a loan. But if you’re in a crisis and need an emergency fund to cover rent, bills, or credit card repayments, a personal loan may be a good idea.
Ask yourself the following questions:
- Is cash the most appropriate method to help you out of your particular situation, or will a credit card do the job?
- How much money do you intend to borrow?
- How long do you want to repay the money?
- Are you in a comfortable spot to repay monthly installments?
If you are still convinced that a personal loan is the best course of action, it won’t hurt to send in your application.
This concludes the basic things you need to know about personal loans. If you do end up taking out any type of personal loan, make sure you fully understand the responsibility of repayment.