Can You Use A Personal Loan?

If you have never taken out a personal loan, you need to realize that they are different than house or car loans. Unlike those loans, which are done to buy a specific asset, personal loans allow you to borrow cash for whatever you want. Almost any lending institution can provide you with a personal loan. While in the past you were limited to applying at local banks and credit unions, you can now apply for personal loans over the internet, so you have many more choices than ever before.

Typically, individuals use these personal loans for a variety of needs which may include a vacation, repairs to a vehicle, expenses of education, sudden medical expenses, home repairs or remodeling. These loans can also be used for debt consolidation, especially if the personal loan can be secured at a lower interest rate than the current debts.

For most people, the maximum loan a lending institution will make is $ 15,000. The amount depends on the lending institutions guidelines for personal loans, what your monthly earnings are, and your credit score. Personal loans are not to be confused with lines of credit. A line of credit is an approval to access funds up to the maximum approved amount, while the personal loan gives the individual the approved amount as a lump sum.

Personal loans fall into two categories: secured or unsecured. Secured personal loans require you to provide the lender with some kind of collateral that they can claim if you default on the loan. Items commonly used as collateral include automobiles, real estate, boats or any other asset that has significant value. Most often, personal loans are unsecured so the lender cannot repossess any of your assets should you default. As you may expect, since the lender assumes more risk with an unsecured personal loan, the interest rates on these loans are substantially more than they are for secured loans.

One to five years is the typical length of a personal loan, with a fixed monthly payment sufficient to pay off the entire balance. Before applying for a personal loan, you need to realize that the longer the term of the loan is, the greater the amount you will be paying overall, because the interest amount is larger. Knowing this, you should try not to borrow any more than you absolutely need and you should also keep the term as short as you can. This will make the monthly payment larger, so you also need to make sure it still fits within your monthly budget.

A very common use of personal loans is to consolidate other debts. Replacing several debts with a single monthly payment can be a good move financially, especially if loan payment is smaller than the total of all the previous payments. An exception to this is for people who have figured out that just paying the monthly minimum due on credit card debt will never pay it off. In cases like these, even though the monthly payment on the loan is higher, the requirement of paying a specific monthly amount can provide the incentive to reduce the debt each month and eventually pay it off.

Unfortunately, many people get into trouble here because they have not disciplined themselves to stop over spending. Once the personal loan reduces their credit card balance to zero, they go right back to their old habits and end up with more credit card debt. So remember that, while personal loans can be a help when you are trying to work your way out of credit card debt, they are not a cure for spending more than you make. Never apply for a personal loan to consolidate debts until you have developed the discipline to not spend above your income.

Applying for a personal loan could not be any easier. You just provide your employment, earnings, and home address information and authorize a credit check. Once the lender has checked your credit, you should quickly know if you are approved. Even if you have limited or bad credit history, do not be afraid to apply for a personal loan. You should still be able to qualify, but the term may be shorter and the interest rate a little higher. Once you have secured your personal loan, make a promise to yourself that you will always make the payments on time or even ahead of time. Paying off a loan like this will boost your credit score and provide you with a lender you can turn to if you need emergency cash in the future.