What you Need to Know About Personal Loans
There’s a reason personal loans are popular. With a fixed rate and term, no required collateral and quick turnaround, these loans are a versatile option to get the money you need for large or unexpected expenses that would otherwise drain your savings.
At the same time, as with any loan, understanding the drawbacks as well as the benefits of a personal loan is crucial for ensuring you’re making the best decision for you. Applying for a loan and acquiring new debt should always be carefully considered, because both will have an effect on your credit score and monthly budget.
Learn more about what Buckeye State Credit Union offers on our Personal Loans page.
Personal loans have a few factors to consider:
·APR (Annual Percentage Rate): This is the interest rate. The higher the number, the more interest you pay on the amount you borrow. Personal loan rates are usually fixed, which means the rate you start with will be your rate for the duration of the term.
·Term: The term is how long you have to pay back the loan. A shorter term will help you pay it off faster and often get a lower rate but will have a higher monthly payment. A longer term offers a lower monthly payment, but you’ll often be paying more in the long term due to a higher interest rate.
·Turnaround: Personal loans are often approved within days – sometimes even with same-day approval. In other words, when you need a lump sum of cash, a personal loan is a quick solution.
· Origination Fees: Loan applications almost always include associated fees. As you start making your money plan, be sure to keep these fees in mind too.
When you apply for a personal loan, the lender takes a look at your credit score and history to offer you term and rate options. Generally speaking, if you have a higher credit score, your rates will be lower, which means any loan you take out will accrue less in interest. But if you’ve borrowed a lot recently, or have missed payments in your credit history, the interest rates you’re offered will likely be higher.
When a Personal Loam makes Sense
Part of why personal loans are so versatile is because they have no restrictions on how you can use the money. The amount of funding you receive may be less than what you could get with a secured loan, but with a fixed rate, a personal loan is sometimes a better option than the high-rate credit card that expects you to pay it back within a month.
So, what are some good uses for a fixed-rate personal loan?
- Large, one-time purchases.
- Think weddings, home or car repairs, college tuition or dream vacations. These are expenses that are too large to be responsibly put on a credit card, but infrequent enough that you can reasonably expect to pay it back before a similar expense pops up again. In an ideal world, you’d be able to save for these expenses in advance, but we know that’s not always an option. A personal loan can help you preserve your savings.
- Debt consolidation
- A personal loan often has a much lower interest rate than a credit card – and with a fixed term, you’ll have regular monthly payments that stay the same. If you’re struggling to pay off high-rate credit cards, a personal loan may be able to help you get your monthly bills under control while saving you on interest payments.
- Building Credit
- If your credit score is lower than you’d like, or you’re just starting out, a personal loan meant for bad credit may help by improving your history of on-time payments. You could start with an unsecured personal loan with a smaller balance, or you might be able to use your savings as collateral to get a lower rate on a personal loan for bad credit.
If you’re struggling with a high debt load, or routinely rely on loans to get what you need, however, a personal loan may not make sense. If you cannot commit to a repayment term, a personal loan will do more harm than good and can tank your credit score. If you have ample savings as well, it’s usually better to use those funds before losing money on interest.
Your Next Steps
Considering a personal loan? You may decide to compare offers from two or more different lenders to try to get the best deal. Once you have your loan offers, compare the rates, terms, loan amounts, monthly payments and various fees.
As you’re weighing your options, don’t forget about your monthly budget – if you can’t keep up with the shorter term’s higher payments, the longer term might work better for you despite the higher interest rate.
Many lenders, including Buckeye State Credit Union, allow you to start your application online for a personal loan. Simply open the online form, enter your information and the amount of money you need, and a loan officer will be in touch to help complete the process!
