Everyone, including you, needs money.
Especially if you’re trying to make a larger purchase or need to pay for something such as a wedding or a cross-country move. But not everyone may have the immediate funds to finance future life events. This is when a personal loan could come in handy.
There are a lot of choices when it comes to selecting a personal loan.
Should you use online lenders or banks, or should you borrow from your family?
Which one has the best options?
Since it’s your money we’re talking about here, it’s important that we get it right. Let’s start from square one.
There are loans for many different purposes, but in the world of personal loans, there are two basic types: Secured and unsecured loans.
A secured personal loan is money borrowed from a lender, who uses your personal possessions—known as “collateral” in the loan world—as security for the loan.
Here are a few examples of collateral you could put up for a secured personal loan:
Machinery and equipment
Valuables or collectibles
Unsecured personal loans, on the other hand, are a little different. Unlike their secured counterpart, unsecured personal loans are typically granted on the basis of factors such as creditworthiness and ability to pay, and they don’t require you to put up any of your things as collateral to secure the loan. Unsecured personal loans could be a great option if you don’t want to risk losing personal possessions, such as your car or your home.
You can get an unsecured personal loan from many different lenders, such as banks, credit unions and online lenders.
There are lenders who use online platforms with easy application processes so you don’t even have to leave home, much less change out of your pajamas, to apply for a loan.
Once you have your personal loan, you can spend the funds on anything permitted by the terms of the loan, which could include anything from consolidating debt to fixing your broken sprinkler system.
A lender may consider the criteria below when reviewing your application to determine whether you can pay back your loan:
Credit: A lender may check your credit history to see how you’ve handled your finances in the past
Collateral: If you’re applying for a secured loan, a lender may evaluate what you can actually pledge as collateral
Capacity: A lender may review your current income and living expenses to assess your ability to pay back the loan
In exchange for taking on the risk that a borrower will default on the loan, the lender will typically charge interest to the borrower until the balance due on the loan is paid off.
QUICK FACT: Be sure to make your payments on time each month. Lenders will often charge interest on the additional days for which a personal loan goes unpaid. So mark your calendar or the back of your hand—whatever helps you remember.
Getting a personal loan doesn’t have to be confusing.
Yes, there are many options and many lenders to pick from. But, you should spend the time looking for what personal loan best suits your needs.
Once you find the personal loan that’s best for you, you’re ready to make your purchase.