There are several different types of personal loans. The type of personal loan you can get usually depends on your financial history. If you have a decent credit score, stable income, and a good payment history, lenders are more likely to offer you a loan with favorable terms and rates.
If your financial history isn’t great and you have a low credit score, some lenders may only offer you a secured bad credit loan. That’s where collateral comes in. Collateral is an asset of yours that you offer up in exchange for a loan, and the lender may claim it if you don’t repay the loan.
How Much Does It Cost to Take out a Personal Loan?
When deciding on the amount of money you want to borrow, keep in mind that your lender may charge a loan origination fee, which is the cost of processing your application. This fee is typically up to 6% of the principal amount, and the fee is not refundable.
Some lenders also charge a prepayment fee or foreclosure penalty. This assures that they don’t lose too much money if you pay off your loan early. It’s usually no more than 2% of the outstanding amount of the loan. You could also be charged additional interest if you’re late on a payment.
How Do I Pay off the Loan?
With a personal installment loan, you typically pay it off in monthly installments over the course of a few months, or even a couple of years. The installments include the principal and the interest. Simply put, the interest is the cost of borrowing the loan.
Interest rates may vary from lender to lender depending on many factors including your credit score, your income, and the state where you live. Personal loan interest may be higher than other types of loans, such as secured loans, because personal loans are riskier for the lender.
How Much Money Can I Borrow?
There are many factors involved in the amount you can get through a personal loan. If your salary is high, you’ll be able to borrow more. If you’re self-employed, the loan limit will depend on your profit and existing liabilities. It will also depend on the type of loan you’re interested in.
Nevertheless, some banks and non-bank lenders have their own restrictions. They determine the maximum amount of money for personal loans, and you can’t borrow more than that.