Personal loans can be used for just about anything you desire. However, some lenders impose restrictions as to what you do with the borrowed money.
Personal loans are typically used for:
Major events: If you want to hold a significant event like a wedding or funeral but don’t have enough funds for it, you could take out a personal loan to supplement your savings and make it happen.
Unexpected expenses: If replacing an expensive appliance (like a furnace) or paying for a major home repair is too much for your credit card, you could consider a personal loan. Personal loans are useful in paying medical expenses as well.
People also use personal loans to consolidate debt or to pay for college.
Personal loans usually range between $1,000 and $50,000, based on your income, credit score, and lender. You can borrow more money if your credit score and income are higher.
You can borrow from the loan only once. It’s only after you repay the entire amount that the account closes. If you want more funds, you have to apply for a new loan.
Interest and Fees
Most personal loans come with a fixed interest rate (the rate remains the same throughout the loan’s term). Some personal loans come with a variable interest rate, which carries the drawback of fluctuating payments. This makes it difficult for you to budget your loan payments.
Your credit score impacts your interest rate. As a (general) rule, the higher your credit score, the lower your interest rate. Apart from interest, lenders also charge you late fees if you make your payments after the due date. Some lenders may also charge an origination fee for setting up the loan. It may range from 1% to 6% of the amount you’re going to borrow, depending on your credit score.
You’ll have a specific period to clear off your loan. The duration is usually 12, 24, 36, 48, or 60 months. Remember, although a longer repayment period means lower monthly payments, the interest you have to pay is higher than what a shorter repayment period would entail.
A longer repayment also means your chances of getting approved for another loan are slimmer. You may also be charged a penalty for repaying your debt early, so try to choose the shortest repayment period convenient for you.