Millions of Americans utilize personal loans every year to consolidate debt, pay for unexpected bills, renovate their homes, and more.
According to TransUnion, the number of persons with personal loans has risen from 15 million to more than 20 million in recent years.
Why do so many people find personal loans appealing? Personal loans have lower interest rates and smaller loan amounts than other loans, making them attractive to consumers with good credit. However, they aren’t always the ideal option for everyone.
If you’re considering taking out a personal loan, there are six things you should know about them before making a choice.
- What is the procedure for obtaining a personal loan?
Installment loans, such as personal loans, are a sort of installment loan. This means you borrow a certain amount of money and repay it in monthly installments with interest over the loan’s term, which commonly spans from 12 to 84 months. Your account is closed once you’ve paid off your loan in full. If you require additional funds, you must apply for a new loan.
The loan amounts vary by lender, but they commonly range from $1,500 to $100,000. The amount you qualify for is determined by your credit score (i.e., how confident creditors are in your ability to repay them if you borrow money).
It’s critical to consider why you require funds and then select the most appropriate loan type based on your existing financial condition.
- Different kinds of personal loans
Personal loans are divided into two categories: secured and unsecured.
Personal loans that are not secured by collateral are known as unsecured loans. Based on your financial history, the lender determines if you qualify. Some lenders provide secured loans if you don’t qualify for an unsecured loan or want a lower interest rate.
Secured personal loans are guaranteed by assets such as a savings account or a certificate of deposit. If you default on your payments, your lender may be able to seize your property as payment for the loan.
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