What Is a Personal Loan and Why You Need: A Completed Guide

When it comes to financing your dreams or tackling unexpected expenses, personal loans are a common option that many people turn to. A personal loan is a type of unsecured financing that can be used for almost any purpose, ranging from consolidating debt to paying for home repairs, funding a wedding, student loans or travel loans.

What is Personal Loan

In this article, we’ll go over the basics of personal loans, guidance on how they work, and the different types that are available to consumers.

What Is a Personal Loan?

Personal loans are a form of installment credit that provides individuals with a lump sum of money that can be used for various purposes. This can include consolidating debt, financing a large purchase, or covering unexpected expenses. Unlike credit cards, personal loan tend to have fixed terms and interest rates, which means that borrowers have a set amount of time to pay back the loans with regular payments.

Personal loan can be secured or unsecured. Secured loans require collateral, such as auto or home equity, to be put up as a guarantee for the loans. Unsecured loans do not require collateral, but may have a higher interest rate as a result.

When applying for a personal loan, lenders will typically review the borrower’s credit score and income to determine their eligibility and interest rate. It’s important for borrowers to shop around and compare offers from multiple lenders to ensure they are getting the best terms possible.

One benefit of personal loan is that they can help improve a borrower’s credit score if payments are made on time and in full. Additionally, personal loan can often be obtained quickly and with less paperwork than other types of loans.

However, it’s important for borrowers to carefully consider and do checking on their ability to repay the loan before taking on debt. Defaulting on a personal loan can have serious consequences, including leading to a bad credit score and legal action taken by the lender including taking your mortgages such as auto and home equity.

How a Personal Loan Works?

When you need financial assistance, a personal loan can be a great option to consider. Personal loans are typically unsecured loans that can be used for a variety of purposes, such as consolidating debt, paying for home improvements, or covering unexpected expenses.

When you apply for personal loan accounts, the lender will review your credit history, income, and other financial information to determine your eligibility and the terms of your loan. It’s important to note that your credit score will play a significant role in the approval process. If you have a good credit score, you’re more likely to be approved for a loan with a lower interest rate.

Once you’re approved for a personal loan, you’ll receive the loan amount in a lump sum. This means that you’ll have access to the full amount of the loan upfront resources, which can save you if you need to make a large purchase or pay off multiple debts at once.

One of the benefits of a personal loan is that they typically have fixed interest rates. This means that your monthly payments will be the same each month, making it easier to budget for. Additionally, personal loans can be either secured or unsecured. Secured loans require collateral, such as an auto or home, while unsecured loans don’t require any collateral.

It’s important to carefully consider the terms of your personal loan before accepting it. Make sure you understand the interest rate, monthly payment, and any fees associated with the loan. You should also consider the length of the loan term and whether it fits with your financial goals.

Overall, personal loans can be a useful tool for managing your finances and achieving your goals. With careful consideration and responsible borrowing, a personal loan can help you achieve your financial dreams.

How To Use Personal Loans Calculator?

Using a loan calculator is relatively straightforward. Firstly, you’ll need to input your loan amount, interest rate, and repayment period. Once you’ve done this, the calculator will automatically calculate your monthly repayment amount and the total interest payable over the loan tenure. It’s important to note that the interest rate that you input should be the Annual Percentage Rate (APR), which includes any fees or charges that may be associated with the loan.

If you’re unsure about how to use a personal financing calculator, don’t hesitate to seek assistance from a financial advisor or your lender.

Types of Personal Loans

There are various types of personal loans available to consumers, each with its own unique advantages and disadvantages. Some of the most common types of personal loans include:

  • Debt Consolidation Loans
  • Secured Personal Loans
  • Unsecured Personal Loans
  • Cosigned Loans
  • Personal Line of Credit

Whether you’re looking to consolidate your debt, fund home repairs, or pay for a wedding, there’s likely a personal loan that can meet your needs.

How to Apply for a Personal Loan?

If you’re interested in applying for personal loan accounts, the first step is to research different lenders and compare their interest rates and loan terms. Once you’ve found a lender that you’re interested in working with, you’ll typically need to fill out an application that includes personal and financial information.

After submitting your application, the lender will review your information and determine whether you’re eligible. If you’re approved, you’ll receive a loan offer that includes information on your loan terms and interest rate. Before accepting the loan offer, make sure to carefully review all of the terms and conditions associated with the loan.

Example of a Personal Loan

Let’s say that you want to take out a personal loan to pay off your credit card debt. You’ve found a lender that’s offering a fixed interest rate of 10%, and you’ve been approved for a loan term of three years.

Your loan amount is $10,000, which means that you’ll need to make monthly payments of $322.56 to pay off the loan in three years. By the end of the loan term, you’ll have paid a total of $11,613.31, including $1,613.31 in interest rate.

Where to Find Personal Loans?

Personal loan services are available from a variety of lenders, including 

  1. Banks
  2. Credit unions
  3. Online lenders

Each type of lender has its own advantages and disadvantages, so it’s important to research all of your options before selecting a lender.

What is the Difference Between a Cash Advance Loan and a Personal Loan?

A cash advance loan is a short-term loan that’s typically offered by credit card companies or payday lenders. These loans come with high interest rates and fees, and are generally only available to individuals with bad credit or no credit history. Unlike personal loans, cash advance loans are typically due in full on your next payday.

How Can I Get Approved for a Personal Loan?

There’s no guaranteed way to get approved for a personal loan, but there are steps that you can take to increase your chances. Some tips for getting approved for a personal loan include:

  • Improve your credit score by paying your bills on time and reducing your debt
  • Show proof of income, such as pay stubs or tax returns
  • Consider getting a cosigner
  • Shop around for the best interest rates and loan terms

Conclusion

Whether you’re looking to consolidate your debt or fund a home renovation, a personal loan can be a great way to achieve your goals while managing your finances responsibly. After you read and understand the basics of personal loans and take steps to improve your chances of approval, you can compare and find the best loan for your needs and take control of your finances.

FAQs

What is the meaning of a personal loan?

A personal loan is a type of loan that is borrowed by an individual for personal use.

How does personal loan work?

The bank provides a sum of money and in an agreed tenure of 12 months and beyond, the applicants need to make monthly repayments.

What is personal loan with example?

Examples of personal loans are debt consolidation, home improvements, and medical expenses. 

What's the difference between a personal loan and a credit loan?

Personal loan and credit loan are different but they refer to the same type of loan.