Life is anything but planned. Opportunities and challenges don't stick to a timeline; any moment could be the opportunity of a lifetime or the chance to overcome adversity. When life happens but your finances aren't in sync, a personal loan could be the solution to come out on top.
What Is a Personal Loan?
Have you ever asked yourself, "what is a benefit of obtaining a personal loan?" Let's define personal loan so you can see the benefits.
A personal loan allows you to access the money you need now and pay it back over time through regular payments. These loans are provided by sources like credit unions, banks, private lenders, and the government for various purposes. They come as loans secured by an asset like a car, an educational loan, or an unsecured loan.
These loans can be paid through scheduled installments for a fixed number of months or years. A portion of payments are allocated towards the loan balance and a portion to cover the lender's interest rate and any processing fees.
Different Types of Personal Loans
Personal loans come in two forms; secured and unsecured. Both get you what you need but differ slightly in their purpose and what backs them.
Secured Loan
A secured loan is taken for an item that will be collateral securing the loan, meaning that the lender can take the item should you default on the payments. The most common type of secured loan would be a home loan or auto loan.
Unsecured Loan
An unsecured loan is taken for whatever purpose you designate it, and no collateral is backing it other than your promise to repay it. While both loans will consider your credit score and ability to repay them, an unsecured personal loan might have a higher credit standard. Additionally, the lack of a security interest might result in a higher interest rate since the lender is exposed to greater risk.
Advantages of Having a Personal Loan
The most significant advantage to a personal loan is access to money when life presents opportunities or throws a curveball. Instead of waiting to save up the funds needed, you have access to them now.
Flexible Uses for the Loan
With an unsecured personal loan, you can fund anything from a car repair, a new bedroom set, or scuba diving school.
Easy To Apply
Personal loans are an easy application, often a single page or quick online form. Often, you'll have a decision relatively quickly and be off and running.
Quick To Disperse
Technology is awesome. There is no need to wait for a check and deposit it into your bank account. The lender will transfer the funds into your bank account, usually within a few days. You have the money you need right away to make that purchase.
Unsecured Loans are Not Tied To Your Assets
Whereas a secured loan is tied to your car or home, an unsecured loan is based on your promise to repay it. If you're late paying, the bank won't be repossessing your car.
However, suppose you are experiencing hardship or difficulty making a payment. In that case, it is strongly advised you communicate your situation with your lender and try to work with them. It's in both of your interests to do so, helping preserve your credit and get the lender repaid.
Fixed Interest Rates
When you take out a personal loan, it is common to have a fixed interest rate that won't go up if general interest rates rise. This means you have a consistent payment to plan on. When you take out the loan, you know where it fits in your budget, helping to ensure you can make the payments.
Can Borrow Larger Sums Than a Credit Card
Whereas your credit card might have a limit of several thousand dollars, it is possible to take personal loans out for significantly higher amounts. This is because it is a fixed amount paid down over time, and it has been determined that you can accommodate the monthly payment.
Unlike your credit cards, a personal loan is not a revolving line of credit that you might never seem to be able to pay off as you use it over and over.
Easy To Manage
A personal loan is easy to manage. The payment is the same every month, so you never have to wonder how it fits into your budget. Watching that balance fall every month after the payment is made is a great feeling and could benefit your credit score.
Predictable Payment Schedule
Knowing when the payment is due every month makes it easy to integrate it into your budget. In fact, you might be able to pick your payment date when you get the loan to ensure it comes at a comfortable time of the month.
Easily Apply for a Personal Loan Today!
It's easy to apply for a personal loan through Integra Credit. The decision is virtually instant, and cash could be in your account as early as the next business day*.
FAQs
Why should I get a personal loan vs. a payday loan or pawn shop loan?
Payday and pawn shop loans are for minor quick emergencies. Neither requires a credit check when applying for the loan, and both have very high-interest rates. They are paid from your next paycheck. With a pawnshop loan, you secure the loan against collateral you bring into the pawnshop. For instance, you might bring in a $5,000 watch for a $1,000 loan, and a missed payment could cost you your collateral.
Both loan types are high risk and low reward, often trapping borrowers in a high-interest scenario of repeatedly borrowing.
A personal loan is a long-term loan offering a more significant loan amount and a significantly lower interest rate.
What are the benefits of a secured vs. unsecured loan?
The main difference between a secured and unsecured loan is that secured loans have collateral associated with them. Due to having collateral and being a lower risk for the lender, secured loans typically have lower interest rates. Because of the higher risk of no collateral, unsecured loans will usually have higher interest rates.
What can you use a personal loan for?
Personal loans can be used for almost anything. They do not allow you to use them for college tuition, home purchases or down payments, or business expenses. Loans tailored for college, home purchases, and business expenses can be secured. Otherwise, almost everything else qualifies for a personal loan.
How to decide if a personal loan is right for me?
There are a few criteria to consider when considering a personal loan. Most importantly, they are a long-term commitment that requires budgeting and responsibility. Also, there are some things for which you may not use a personal loan. Consider the monthly payments and if you can afford them throughout the life of the loan.
Sources
https://www.investopedia.com/terms/u/unsecuredloan.asp/
https://www.experian.com/blogs/ask-experian/what-is-a-secured-loan/
