People obtain personal loans for a variety of reasons. Whether you want to finance a major life event, like a wedding, make some much-needed improvements to your home, or consolidate debt, personal loans are a great financing option.
No matter what your needs, a personal loan can support you in accomplishing your financial goals with more freedom and flexibility than alternatives.
How Personal Loans Work
A personal loan is an installment loan that gives you a fixed amount of money in one large sum that you will then pay back, usually over a period of a few years. These loans can be used to access anywhere from $500 to $15,000, and in some cases more, although different lenders offer different opportunities.
The process of applying for a personal loan is fairly straightforward and is similar to applying for a credit card. After giving a potential lender your personal and financial information, you’ll go into detail about the amount of money you hope to receive and what you’ll plan on using it for.
Personal loans can be used for a wide range of purposes, but some lenders have restrictions on what you can use the money for. They may only offer home improvement personal loans, for example, and may restrict you from using the money to pay off existing debts.
Your prospective lender will run a hard credit check to determine your credit-worthiness. Once that has been completed, they will set your interest rate as well as the loan amount and any other terms you’ll need to agree to before you access the funds.
Funds are then either deposited into your bank account or sent to you via check, and repayments will begin immediately.
Benefits of Personal Loan Financing
Now that you understand how a personal loan works, and what it can be used for, let’s take a deeper look at the various benefits you can enjoy.
Higher Borrowing Limits
As stated, one of the major benefits of obtaining a personal loan is that they have a much higher borrowing limit than most credit cards.
At Jeanne D’Arc Credit Union, you can borrow up to $15,000 without collateral. On the other hand, if you took out a credit card, your opening credit limit might be half what a personal loan would offer.
Lower Interest Rates
Reduced interest rates are a big benefit of obtaining a personal loan. Whether you want to make a large purchase or consolidate high-interest credit card debt, you’re in luck, and will most likely benefit from low-interest rates.
Unsecured personal loan interest rates come in at or near 10%. You’d be lucky to find a credit card marketed as a “low APR card” with rates that low. And, sometimes rates can spike, especially after your initial introductory period ends.
Personal loans are incredibly flexible financing solutions if you need to pay for a significant one-time purchase. And it doesn’t have to be a major event like a wedding or home improvement. Personal loans can be used to purchase a car, for example, especially if it’s a private party transaction that a lender may not support with traditional auto financing options.
You can also use a personal loan to pay for a dream vacation. If you take out the loan before you leave for your trip, you could use the money to cover your travel expenses and other accommodations, while taking whatever is left over to pay for meals, excursions, souvenirs, and more.
Seizing Opportunity By Obtaining A Personal Loan
In the end, it’s important to understand that personal loans are a great option if you need money fast – particularly since many lenders will make your funds available to you in just a few days once you’ve been approved.
Because loan interest rates are typically lower than credit cards (especially if you have a high credit score), they’re also a perfect way to relieve some of the financial burdens you may be feeling elsewhere.
But as is always true, there is no one size fits all answer about whether or not you should take out a personal loan. Only by carefully weighing the pros and cons and considering your situation can you make the most informed decision possible when it comes to your financial future.
If you’d like additional information about the range of benefits offered through personal loans, or to begin investigating how much you could potentially borrow, click the button below.