A personal loan can help you make a large purchase, manage debt or finance a home improvement project. It’s a type of credit that provides you with a set amount of money that you pay back over a certain term, along with a fixed monthly payment. Many banks, credit unions, consumer finance companies and online lenders offer personal loans. If you’re considering one, it’s important to understand what you’re getting into. In this article, we will provide you with all the information you need to decide if a personal loan is right for you.
There are two types of personal loans: secured and unsecured. Secured personal loans are backed by an asset like your car or savings account. This means that if you default on the loan, your lender can repossess or liquidate that asset to pay off the debt. Unsecured personal loans are not backed by any assets and are typically granted to borrowers with good or excellent credit.
Personal loan requirements vary by lender, but in general, lenders check your credit score and debt-to-income ratio to ensure that you don’t borrow more than you can feasibly repay. Lenders may also look at alternative data, such as your employment and education history, when evaluating your application. If you have a poor or fair credit score, you can try to boost your chances of approval by improving your credit before applying and seeking a cosigner who has a strong credit profile.
Once you’ve been approved, the lender will deposit the funds into your bank account or send a paper check. The funds will then begin to accrue interest charges. It’s important to make all of your payments on time to avoid paying late fees or damaging your credit score. If you’re struggling to afford your loan payments, it may be a sign that you’re in financial distress and need to seek debt counseling.
A personal loan is an affordable way to make a big purchase or finance a project. It’s also a popular way to consolidate high-interest credit card debt and reduce your monthly payments. It’s important to shop around for the best personal loan rates and terms before committing. In order to qualify for the best rate, you should work on improving your credit score and keeping your debt-to-income ratio low. If you’re unsure where to start, CNBC Select has an exclusive tool that allows you to input your personal information and get matched with personal loan offers without impacting your credit score. Click here to learn more and apply.