When are Personal Loans a Good Idea?

When are Personal Loans a Good Idea

So, you want to take care of a couple of things, and you’re thinking a personal loan might be in order. That’s understandable since such loans work in a myriad of situations, including when you don’t have cash. Because you’ve never taken out one, you’re not exactly clear on what it all entails. With that in mind, here’s how you know when personal loans are a good idea – and more.

What is a Personal Loan?

It’s a kind of unsecured credit that you can use however you like, although some lending institutions do ask for a purpose. A personal loan can facilitate a big purchase, allow you to handle an unexpected expense, or enable you to consolidate higher-interest debts such as from credit cards, for example.

Such loans are repaid in fixed monthly installments, plus interest. Rather than putting cash away over what may be a protracted period for whatever it is you want to use it for, a loan can cover it right away. Then, you’ll pay the loan back with payments you can manage.

Where Can I Get a Loan?

Personal loans are offered by many banks, online lenders, and credit unions. You may even be able to prequalify online, which allows you to shop around and see what rates for which you qualify with just a “soft” credit pull.

Do note that, in addition to interest, some loans will carry origination fees that can range from 1 percent to 8 percent of the amount you’re borrowing.

All personal loans have terms that include:

  • Your monthly payment. This is how much you must pay monthly on the loan. It includes the principal plus interest and fees.
  • Interest rate. This is the amount you’re charged for loan financing and is a percentage of the principal. According to the Federal Reserve, the average interest rate is 8.73 percent for a 24-month personal loan.
  • Repayment. This is how long you’re given to repay the loan. Terms are usually one to five years, which are often expressed as months.

How Do Such Loans Work?

After you apply, the lender will look at your credit history and scores, as well as factors such as your debt-to-income ratio, to determine whether you can afford loan payments and are liable to make them.

If you’re approved, you may have funds in hand in days or sometimes in minutes. It all depends on the lender, however.

Personal Loans a Good Idea

What Credit Scoring Do I Need?

In general, your interest rate will depend on your score, which lenders like to see in the 670 to 850 range.  Yes, you may be able to get a loan with numbers under those, but you’ll likely pay for that with a higher rate. Again, though, it depends on the lender. So, do shop around. We recommend that you check out Achieve personal loans.

You may ask yourself, when to get a loan? Well, if your credit score needs improving and you don’t need a loan right away, it might behoove you to try to boost your credit before applying.

How Can I Use a Personal Loan?

As we say, you can usually use such a loan however you wish. Some common reasons are to consolidate debt, pay down medical bills, cover home renovations and repairs, underwrite major purchases, fund an emergency, help with moving costs, finance a vehicle, and pay a tax obligation.

Having said that, some lenders prohibit you from using a personal loan for college tuition or to pay off student loans. You also may not be allowed to take out a loan to secure a down payment for a house, or to pay for business expenses.

In summary, personal loans are a good idea for whatever you wish to use them, except for the above items, which may not be on your radar anyway. And remember, we recommend Achieve for your personal loan needs.

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