A personal loan can help you get the funds you need for a variety of reasons. You can use the money to pay for a home improvement project, finance a vacation or cover an unexpected expense. But before you apply, it’s important to understand the details of personal loans. This article will give you all the information you need to make an informed decision about whether this type of loan is right for you.
Personal loans are repaid in monthly payments that include both principal (the amount you borrowed) and interest. Typically, each month’s payment will remain the same for the duration of the loan term, which can be anywhere from one to seven years. The loan process starts with a credit application that includes information about your income, expenses, debts and recent credit inquiries. Lenders use this data to determine your creditworthiness and decide if you’re a good candidate for a personal loan.
Generally, you’ll need to have at least a fair credit score to qualify for a personal loan. Lenders usually reserve the best rates and terms for borrowers with excellent credit scores. If your credit score is low, you can take steps to improve it before applying for a personal loan.
After you submit your application, the lender will review it and, if you’re approved, send you a promissory note with all of the repayment terms. This document will specify, among other things, when your payments are due, the applicable interest rate and if there are any fees. Some lenders may roll these fees into your monthly payments; others will deduct them from the loan proceeds.
If you’re unable to make your payments, it’s important to contact your lender as soon as possible. This will help you avoid defaulting on your loan and may provide options like deferment, forbearance or a repayment plan. If you default on your personal loan, it could hurt your credit and lead to additional debt.
You can get a personal loan from many different places, including banks, credit unions, consumer finance companies, online lenders and peer-to-peer lenders. Some of these lenders specialize in personal loans, while others offer them to a broader range of borrowers. Before you choose a lender, read reviews and compare rates to find the one that best fits your needs.