the personal loan
Do you need cash for a project up to $60,000 but are hesitant to take the plunge on a personal loan? Find out in this article the essential information you need to know before applying for such a loan.
What is a personal loan?
A personal loan is a type of loan that allows you to borrow a sum of money that you then pay back over a pre-agreed period of time. The lender adds an interest rate that you pay back along with your payments.
This type of loan is also called a consumer loan, long-term loan or installment loan. It is used for specific expenses such as buying a car, furniture or renovating your home. Generally, personal loans range from $100 to $50,000 depending on the lender and are for 6 to 60 months.
Who to borrow from? Traditionally, banks and credit unions offer this type of loan. However, you can also turn to payday lenders, title loan companies, private lenders and pawnbrokers.
How a personal loan works
Before taking any action, you need to decide how much money you need for your purchase and which lender you should go to. Once you’ve decided, you can start putting together your loan application. The lenders will then make sure that you meet several criteria such as
You have a regular income,
you have a bank account,
you have a permanent address.
The lenders will then perform a credit check on your personal loan application. The elements of this credit report allow the lenders to evaluate your ability to repay the loan. In particular, they will look at your debt history, which will have a direct impact on the approval of the personal loan. The history also impacts your borrowing options such as the interest rate. It is therefore important that you can show that you know how to manage your money and that you are a serious borrower.
The different types of personal loans
There are two types of personal loans that may or may not guarantee your creditworthiness to your lender.
The secured loan
With a secured personal loan, you agree to have one of your assets (such as your car) used as a promise to repay with your lender. This asset is collateral, which means that in the event that you fail to repay the lender, they have the right to recover that asset to compensate.
There are different types of secured loans that are offered such as traditional secured personal loans, title loans as well as pawn loans.
This type of loan does not require you to have collateral. In the event that you do not pay back your lender, the lender can then take you to court. Be aware that there are different options, such as the right of set-off.
If you do not go through a traditional lender, the loans are called installment loans and have higher interest rates than those offered by traditional banking institutions.
Whatever your need, find out beforehand which loan is best for you.
This post is also available in: Français (French)