Are you thinking about getting a personal loan? Perhaps you realize you need money for something you want, and are wondering if a personal loan is the best choice. Lots of people, just like you have gotten personal loans to help reach their goals.
We’ve asked people what some of their top questions about personal loans are and have answered them. Now we share both the questions and the answers with you. We think this will help you also to understand personal loans even more!
1. What type of debt are personal loans considered to be?
Personal loans are “unsecured” debt as they are not backed with collateral. To get a personal loan you do not have to guarantee it with any collateral, such as a house, a car, a boat or anything else. This is why it is considered unsecured debt.
2. What matters the most when you go to apply for a personal loan?
Your credit rating is critical when obtaining a personal loan. A credit rating provides a determination as to your borrowing power. Most often, lenders will look for individuals and families that rate in the range of “excellent” and “good.” But you can obtain a personal loan if your credit rating is lower than this.
740 and higher = excellent
661 to 739 = good
601 to 660 = fair
501 to 600 = poor
500 or lower = bad
As you can see, an “excellent” credit rating is 740 or higher. A “good” credit rating is between 661 and 739. The typical American has a credit rating of 700.
3. What are some of the most popular reasons a person or family would choose to get a personal loan?
A personal loan is a great choice if you have a home improvement project or want to make a big purchase. For example, a family might be expecting another child. So they want to add another room onto their home. Obtaining a personal loan to do this would be a good option. Or if you’re celebrating your 25th wedding anniversary and want to take that romantic honeymoon vacation that you never got to take for your wedding, to Hawaii.
4. I have a lot of credit card debt. Are personal loans a good way to fix this problem?
Some people use a personal loan to pay off credit card debt to avoid paying higher interest rates each month. People have found this is a great way to pay off their debts while avoiding paying the high rates of credit card interest. Everyone’s circumstances are different, so it can depend on how high your credit card interest rate is and the type of personal loan that you obtain. But do keep in mind that some people right now are paying up to 30% interest on their credit cards and a personal loan’s interest rate is far lower than that.
5. Can you use a personal loan to buy a house?
Sometimes the process for getting a personal loan can be quicker than getting a mortgage, depending on your personal circumstances and amount that you need. Everyone’s circumstances are different. One of the great benefits of a personal loan vs. a mortgage is that it requires far fewer documents to be approved. If you have a great credit rating then this could certainly work to your advantage.
6. Okay, I know that every loan has some type of interest. What would you recommend I look for in a personal loan?
The best rate to look for with a personal loan is a fixed rate agreement. You’ll find other types of rates, but with a fixed rate you are paying the same type of interest over the entire period of the loan. This can give the borrower a lot of confidence. It will also help you to plan your budgeting in terms of paying it back.
7. What time period is most often recommended for a personal loan?
A personal loan is typically for about 2 to 5 years. If you think it will take you longer to pay off the money, most experts recommend that you consider breaking your project and the loan into smaller parts. For example, if you have a big home renovation project then you may need to do it in several steps. To pay off one part and then work on the next part. The best timing for a personal loan is to have one for 2 to 5 years most of the time.
8. If I have the money, can I pay my personal loan off 6 months ahead of when it is actually due?
Keep in mind that sometimes if you pay off your personal loan early, it can actually force you to pay additional fees. So actually, you’ll simply want to continue making your regular monthly payments until the loan is completely paid off. We recommend putting that money aside, in your savings account so you know it will be untouched. Then move enough to pay one month payment at a time every month until you’ve paid the whole balance off. After all, who wants to pay early payment penalty fees?
9. Who gets personal loans? Rich people, middle class people or what type of income level most often chooses them?
Actually, people of every income bracket find personal loans quite helpful. One of the best things about a personal loan is that it is determined by your credit rating, not mainly by your income level. So most people with a good credit rating can find they can get a personal loan with confidence.
10. My credit is not great. Can I still get a personal loan?
Yes, you can still get a personal loan. But if your credit rating is poor, your interest rate on a personal loan may be as high as that on a credit card. Part of this will depend on the lender that you work with and their determination of your credit score.