How Do Personal Loans Work?
Personal loans can be a great alternative to credit cards when you need cash quickly. Whether you need money for debt consolidation, to finance home renovations, or for almost any other purpose, this financing option might be for you.
However, before you start searching for a lender, it’s important to understand how they work, what they can be used for, and how to apply.
That being said, let’s take a closer look at how personal loans work.
Interested in applying for one?
If so, make sure you’re familiar with how they work and what they can be used for before you start applying.
What Can They Be Used For?
One of the main reasons that this type of debt is so popular is that it can be used for just about any purpose, including:
● Emergency expenses
● And more
Of course, while you can use this money for nearly anything, keep in mind that you generally shouldn’t take on debt that isn’t financially beneficial — meaning, you might want to think twice before borrowing $10,000 for a fancy vacation.
Rates, Terms, & More
To understand how personal loans work, you need to understand the different components of them. These components include:
● Term: The term is the amount of time you have to repay your debt. For this type of financing, term lengths are typically anywhere between six months to five years.
● APR: Your annual percentage rate (APR) represents your interest rate plus any fees that you are required to pay. You should expect to see APRs ranging from around 8% to around 35%, depending on the lender and your credit score.
● Borrowing Limits: The borrowing limit is the maximum amount of money that you can borrow. Borrowing limits typically range from $10,000 to $35,000 but can be as high as $100,000.
● Other Fees: When you borrow money, it’s important to check with your lender to understand what fees you may be responsible for. This can include prepayment, late payment, origination, and other fees.
Before applying for one, be sure to compare rates, terms, and requirements from multiple lenders to find the right option for you.
Once you find the right lender, simply submit your application, review your terms, and sign your loan agreement to receive your funds and begin your repayment schedule.
Based on a $10,000 loan, excellent credit score with a 14% interest rate on a 1 year term