A personal loan is money you borrow to fund large purchases such as emergency expenses, debt consolidation, home remodeling, etc. In general, the length of these loans is two to six years, although they may last longer depending on your circumstances and the diligence with which you make your payments.
Once you’ve been approved for a personal loan, the funds will be deposited in a lump sum into your bank account. Depending on the lender, this transfer may take as little as 24 hours or as long as a few weeks. As soon as the loan is disbursed, you’ll be required to start making monthly payments. Most personal loans, such as those provided by Lending Arch, have fixed interest rates. This means that your payments will remain the same each month. Furthermore, personal loans are generally unsecured, which means there’s no collateral behind the loan. Therefore, if you don’t qualify for an unsecured loan, you’ll need to have someone co-sign or use collateral like a savings account or certificate of deposit to get approved.
There are many reasons to apply for a personal loan. Let’s explore three of those reasons.
- Consolidating Debt
Consolidating your debt is one of the most popular reasons for taking out a personal loan. By using a personal loan to pay off your debt, you consolidate all your outstanding balances into one monthly payment. This makes it easier to manage your debt as instead of making multiple payments on a variety of deadlines, you have one payment and one due date.
Additionally, you will get a lower interest rate when you use a personal loan to pay off your debts. This means that you can reduce the amount of interest you pay and the amount of time it takes to pay off your debt.
2. Emergency Funds
If you need the money and it’s a long way until payday, using a personal loan rather than a payday loan may save you hundreds of dollars in interest charges. According to the Consumer Financial Protection Bureau, payday loans generally carry a fee of $10 to $30 for every $100 borrowed. Comparatively, personal loans typically carry a maximum interest rate of 36 percent.
Furthermore, payday loans have short repayment terms, generally between two and four weeks. As a result of this quick turnaround time, it can be difficult for you to repay the loan by the due date. If this happens, you may be forced to renew the loan, which will cause accrued interest to be added to the principal, increasing the total interest owed. Personal loans, by contrast, have longer-term lengths and will usually cost you less in total interest.
3. Home Renovation
You can use a personal loan to upgrade your home or undertake necessary repairs such as repairing the plumbing or fixing the electrical wiring. If you own your home, you have the option to finance renovations with a home equity loan or a home equity line of credit. However, these loans require you to use your home as collateral. Therefore, a personal loan is a good fit if you don’t want to take the risk of a home equity product.
If you require a quick inflow of cash to pay for necessary expenses, a personal loan may be a suitable option. This is because interest rates for personal loans are generally lower than those of credit cards or payday loans. Additionally, they don’t require your home as collateral as with home equity products. However, it’s essential to weigh the benefits with the disadvantages. After all, taking out a personal loan means taking on debt, and you need to be able to make payments on that debt for a few years. Therefore, if you don’t have the monthly budget for the principal payments plus interest, you should reconsider how much you’ll borrow or how you borrow.
Photo by KoolShooters from Pexels