What is a personal loan?
A personal loan is a type of loan that can help you cover your obligations. It is usually easy to obtain because it does not require collateral. In addition, it does not involve many restrictions on how the money can be spent. Unlike credit cards or other types of loans, when you apply for a personal loan, you get a fixed amount that you pay in monthly installments. There are several places where you can apply for a personal loan. These include banks, credit unions and online lending institutions.
Today, with the growing number of online lending institutions and the ease of the application and approval process, more and more people are opting for this option. However, it is worth remembering that while the online application takes about ten minutes, approval can take up to a week, depending on how quickly you provide all the necessary documents.
Although the process is less burdensome, you should be aware that personal loans also involve the payment of interest. In addition to the usual fees, you will also have to pay some administrative fees. This is an amount that lenders usually deduct from the loan amount once it has been approved. But beware: many lenders also charge a "prepayment penalty." While it's appreciated in some places if you pay off the loan before the due date, online lenders aren't too happy about this because it causes them to lose future interest.
If you are considering applying for a personal loan, you need to know the terms. Many of us are unfamiliar with words like collateral, credit score, prime interest rate and the like, and it can be very confusing. Here are explanations of some of the most common terms you'll hear from lenders:
- Annual Percentage Rate (APR) is the amount of interest and costs you will have to pay to get a loan.
- Collateral is an asset you own that you offer to the lender as security for repayment of the loan.
- Credit report is a report that shows your credit history.
- The credit score shows the numerical data on your credit report.
- If you do not pay back the loan according to the loan agreement, it will be considered a default.
- If you miss payments or are late, the lender will consider your account in default.
Reasons to apply for a personal loan
One of the reasons people apply for a personal loan is that there are not many restrictions on spending. People apply for this type of loan for a variety of reasons. We list a few to give you some ideas:
Some people have taken out other loans in the past and then found that they were having trouble paying them back. In this situation, they opt for personal loans to get out of debt.
But it is also possible to apply for a personal loan for entirely personal reasons. Imagine that you want to ask your girlfriend to marry you. However, you have a limited budget and engagement rings are expensive. In this case, a loan may be helpful.
Life can be unpredictable and sometimes it is necessary to cover expenses that were not planned. A loan can be used to cover the cost of car repairs, home repairs or certain urgent medical procedures.
How does COVID-19 affect personal loans?
The pandemic has caused not only a health crisis, but also a financial crisis. The concept of working remotely was a shock to many. However, it must be said that those who kept their jobs even though they had to work from home are lucky. Many people in the tourism and other sectors have taken big pay cuts and many have lost their jobs.
But despite the economic impact of the ongoing pandemic, it is still possible to apply for low-interest personal loans. Some lending institutions are offering coronavirus hardship loans, which are easier to apply for. Many lending institutions offer them as low interest personal loans. Sometimes they even have 0% interest rate.
The application procedure for personal loans has also not been affected by COVID 19. However, to get a loan, you must have a good credit history and verifiable income. Some lenders may have stricter requirements due to the pandemic.
As a rule, banks have the most stringent requirements. Since they are also for-profit institutions, they are likely to charge the highest interest rates. Approval times vary from bank to bank.
Credit unions, on the other hand, are nonprofit organizations and serve to represent the interests of a certain group of people. They are member-owned and have more flexible requirements and lower interest rates. If a credit union approves your personal loan application, you can expect to receive the money within one to five business days. Some may even complete the entire process and send you the money within 24 hours.
The fastest way to get approved is to apply for a personal loan at online lenders. They provide loans even if you have bad credit. In most cases, lenders approve loans within one business day.
Although you cannot influence the lenders, there are several things you can do to speed up the approval process. Keep in mind that the sooner you are approved, the sooner the money will be in your hands. Here are some suggestions:
- Check your credit before you apply to help lenders understand how you manage your finances. It can also help you choose the right lending institution.
- Make sure lenders can access your credit.
- The best thing to do is to apply for a personal loan online.
- Make sure your application is correct.
- Consider getting pre-approval. If you apply for pre-approval, lenders will only make a discreet inquiry, which means they will not look at your credit score. This will also reveal your chances of approval.
How to choose the best personal lender?
To choose the best personal lenders, you need to do some research. Consider different options such as banks, credit unions and online lenders. Ask about interest rates, collateral, loan terms, etc., and compare details.
Also consider the size of the loan. Based on your needs, choose the amount that is able to cover your expenses. Some people seek only small personal loans to cover basic car repairs, while others need large amounts. Also, check processing fees and early repayment penalties. We have heard people ask questions such as, "Should I look for personal loans near me?" If you are applying for a loan from an online lending institution, the neighborhood is irrelevant, since the entire process takes place online.
Personal loans are a useful financial tool for covering unexpected expenses or consolidating debts. However, it is essential to handle personal loans wisely. That said, it is important to be fully aware of everything you are accepting and check your credit report before applying. Also, think about a reasonable repayment plan based on your agreement with the lender. Have you ever thought about applying for a personal loan? Have you ever done so? What are your experiences? Ask us for help!