A personal loan is money borrowed for personal use, usually from a bank, or online lender. They can be secured, meaning they require collateral, or unsecured which requires no collateral, only the promise to repay.
What Are Personal Loans?
Buying a house? Starting college? Want a bit more financial runway? There are many scenarios in which one might consider taking a loan. However, before such a situation presents itself, it’s important to know enough about a loan to make a responsible, safe decision that will benefit your current financial situation.
Secured or unsecured, many types of loans available today have different benefits and purposes, but they all come with some risks too. This is why it’s important to understand exactly what you’re getting before choosing one.
So how do you choose the best loan to fit your needs? And how do you recognize the ones that will benefit your financial situation the most?
Types of Personal Loans
- Secured Installment loans require collateral. Secured loans are typically used to buy a new home or a car. They are some of the most affordable loans, with rates set in advance and spread out over monthly payments.
- Unsecured installment loans require no collateral, and are typically smaller dollar amounts used for unexpected personal expenses.
- Student loans are intended to cover major university expenses, as the name suggests.
- Payday loans work as instant, short-term solutions when you need money urgently. After borrowing, you are supposed to repay the loan the next time your paycheck arrives.
- Title loans are similar to payday loans, except they also involve your car as collateral. If you aren’t able to repay the loan, the lender is allowed to repossess your vehicle to cover the loss.
- A cash advance is a loan you get from a payday lender by writing a post-dated check and borrowing an agreed amount of money. However, when repaying this balance, you have to pay back everything you borrowed, including the lender’s fee and interest.
- Debt consolidation loans are used to pay off multiple debts and replace them with only one. What’s important here is to take a consolidation loan with an interest rate lower than that of your other bills.
- Bad credit loans are intended for people who have a credit score lower than 630. For this reason, these loans are riskier for lenders and typically come with a higher interest rate.
Benefits of Personal Loans
Even if you have a good emergency fund or don’t plan on making a big investment any time soon, taking a personal loan can be beneficial.
You can boost your credit score faster and more efficiently than you would with only credit cards by clearing their higher interest rates. This works for other high-interest debts, too – paying them off as quickly as possible will leave you with a lower rate to deal with in the long run, and save you a lot of money almost effortlessly.
If you are tangled between multiple debts, choosing which one to pay first and balancing all the interest rates is just an endless downward spiral. In this case, you can take a debt consolidation loan to pay off the other debts, and leave only the single loan instead. This means no more penalties or prioritizing, just a single bill you can count on every month.
If you need to borrow some money but aren’t comfortable with the idea of collateral, you may want to get an unsecured personal loan. In this way, you aren’t risking your assets. Keep in mind though, that unsecured loans often have higher interest rates which may carry certain risks.
How to Recognize Predatory Loans
Although there isn’t a single definition of what a predatory loan is, some or all of these general characteristics are usually present:
- Unjustified high interest rate for a short-term loan
- High penalties, designed to keep you in debt
- Unclear or changing billing system
- Deceptive conditions of agreement
- Non-negotiable terms
Simply put, if you are having trouble fully understanding some basic points of the agreement or simply feel uncertain about it, it is best to do your homework and research before signing an agreement. Demanding transparency, staying well-informed, and having a professional by your side will ensure you get the most out of a personal loan. At CreditNinja, our customer service representatives will answer any question you may have.
How to Take Out a Personal Loan
CreditNinja offers safe and responsible personal loan products. We’re here to provide you with the most reliable and immediate financial support when you need it.
With CreditNinja, your application can be approved in minutes, and you can get your cash in just 24 hours after approval. Start an application today to see what your potential loan amount can be.