A personal loan is a lump sum of money, borrowed from a financial institution or lender. This loan can be used for just about any purpose.
What can I do with a personal loan?
It’s essentially up to you what you spend your personal loan money on. Though the money should only be spent thoughtfully and with good purpose. Here are a few examples as to why someone may take out a personal loan.
Consolidate Debt
If you have a lot of debt or high balances on your credit cards, a personal loan can be used to consolidate the debt. You’d have to find a personal loan that has a lower interest rate. With the loan, you can eliminate debt faster because you’ll spend less money on interest in your monthly payments.
Home Improvements
While people often use home equity loans for home improvement projects, that’s not always the case. If you don’t need a significant amount of money for your home improvements, a personal loan could be less expensive and easier to apply for.
Invest in Yourself
Personal loans can be used to start a business or need to learn a new skill for your career. However, some lenders limit how you can use loan proceeds—some personal loans don’t allow you to use them for higher education expenses.
Emergencies
If you don’t have a savings or emergency fund, you may need to turn to a personal loan in times of emergency. This could be used for medical debt or any other unforeseen emergencies.
How to get a personal loan
The first thing you’ll need to do to get a personal loan is fill out a personal loan application with a lender. Lenders will use your credit and income to determine if your loan application qualifies. Here’s what they look for:
Credit History
When applying for a personal loan, lenders will check your credit score to see how you’ve handled credit in the past. This report gives them details about previous loans, late payments, and any other public records that lenders may want to know about.
To better your chances of being approved, make sure your credit score is as a high as it can be. Pay down balances, don’t use too much of your credit limit and make payments on time.
Income
Lenders also need to verify that you make enough money to pay back the loan. They will likely ask for details about your employment and income. They’ll also check your current debt to be sure that the loan payment won’t consume too much of your monthly income.
For income, be sure to put your gross income. So, if you’re married and rely on your partner’s income or you receive monthly benefits, include this in your application
Types of Personal Loans
There are a few different kinds of loans you can apply for when getting a personal loan. Here are a few:
Standard Personal Loans
These are the loans offered by banks and credit unions. You’ll need to be a member of the bank or credit union first. You can apply for these in person or possibly even online. The funds will go right into your checking account.
Online Lenders
Peer-to-peer (P2P) sites and other online lenders offer loans from investors and financial institutions. The application process is usually fairly easy, and it can all be done online.
Specialized Lenders
Some lenders work directly with service providers. These lenders will usually fund specific projects or treatments. While borrowing may be an easy process, it’s always best to shop around and consider all of your options.
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