A personal loan is essentially a type of credit that many people get to pay medical bills, make improvements to their homes, fund vacations and weddings, and a number of other things. If you need to borrow a significant amount of money for any reason, it is important that you get as much information as possible on personal loans. When you take the time to get this information, you will be able to make an educated decision. The last thing you want to do is rush into getting a personal loan, because you will most likely regret it.
Where to get a Personal Loan
You can get a personal loan at a bank or credit union, though there are also a number of private lenders you can borrow from. It is highly recommended that you first try to get a loan from a bank or other reputable financial institution. You can always go looking for private lenders if you get turned down by your bank, but not all of them are reputable or trustworthy. If you are going to go with a private lender, make sure you do your homework before choosing one in particular to borrow from. You will most likely be able to apply for a personal loan online.
Documents you will need
There are going to be some personal and financial documents that you will need to verify your identity and income. Most lenders will require you to submit proof of where you live and work. Every lender has different rules about which documents applicants must submit, but you will definitely want to have proof of your residence and employment on hand. For proof of residence you can use your driver’s license, and for proof of employment you can show them a recent pay stub.
Secured vs. Unsecured Loans
A secured loan can be secured or unsecured. You will find that a secured loan requires some sort of collateral, such as a car or home. This means that if you default on your loan because you are not able to pay it back for whatever reason, you risk losing the property you put up as collateral. An unsecured loan does not require any collateral at all, but these loans can be hard to get for those who don’t have very good credit. It is very important that you take the time to think about whether or not you want to get a secured loan, because you are risking losing your property if you are unable to pay back the money on time.
The APR or annual percentage rate is the interest that you will pay on your loan. The interest rate that you pay will depend on a number of factors, including the lender you choose, the state of your credit and even where you live. Those who have poor credit can expect to pay a higher interest rate than those with good credit. Secured loans usually start out at about 5% interest, but they can go as high as 10%. Unsecured loans can come with an interest rate of anywhere from 10% to 30%.
Defaulting on Payments
The last thing you want to do is default on your loan payments, because this will reflect very negatively on your credit. If you have a secured loan, the lender will seize control of your collateral. The lender will sell the property that you put up as collateral to get the money you still owe them. Personal loans can be an excellent way to get the money you need, but it is crucial that you pay them back on time and in full.
You will want to spend some time crunching the numbers to determine how much you can realistically afford to borrow. Your lender will determine this as well, but you will want to do your own homework just to make sure. One of the biggest mistakes that people who get personal loans make is to borrow more than they can afford, and as a result they end up defaulting on the loan they take out. The more time you take to consider these things, the better off you are going to be overall.