There are times when you might want a chunk of cash, but you don’t want to pay the fees that come with a cash advance — and you certainly don’t want the high interest rate. In these cases, a personal loan can help. If you have good credit, it’s possible to get a personal loan at a reasonable rate, no matter what you are trying to accomplish.
What is a Personal Loan?
A personal loan is a (usually) unsecured loan designed to allow you to get a certain amount of cash for nearly any reason. Rather than being tied to a specific purchase, such as a car or a home, a personal loan can be used for almost any purpose. Some lenders like you to disclose what you’re using the personal loan for (moving, debt consolidation, wedding, or some other purpose), so be prepared to answer those questions.
Personal loans are also installment loans, unlike credit cards, which allow you to keep borrowing as long as you pay down what you owe so you still have a balance available. With a personal loan, you are given a finite amount of money, usually as a lump sum, and you are expected to repay it using installments over a specific period of time (usually between three and five years).
Qualifying for a Personal Loan
No matter where you go to apply for a personal loan, you will need to provide some specific information about yourself. You need to disclose your income, as well as other debt you might have. Additionally, there will be a credit check. If you have good credit, you will be able to get a personal loan with a competitive rate.
Having good credit is important if you want to keep your rates lower. Your interest rate on a personal loan is likely to be somewhere between six percent and 12 percent, depending on how much you’re borrowing, how long the term lasts, and your credit rating. If you have poor credit, your rate will be higher, usually above 20 percent. Having good credit can save you hundreds of dollars on your personal loan.
Where to Find a Personal Loan
There are a number of options available for personal loans. You can start with your bank or credit union, where it’s often possible to get a personal loan (sometimes called a signature loan) for between $3,000 and $10,000 without too much trouble if you have good credit, adequate income, and are a good customer.
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It’s also possible to use peer-to-peer lending as a way to get a personal loan. With peer-to-peer lending, individuals help fund your loan (through a company like LendingClub) in order to get you the amount that you want. In some cases, getting a peer-to-peer loan can be a good alternative to getting a loan from your bank, since you might see a lower rate, or a five-year payment plan when the bank insists on three years.
Finally, there are online lenders that will provide unsecured personal loans. The rates on these loans are often higher than what you might find elsewhere, so be sure to read all the fine print before taking this route.
Before you decide on a lender shop around a little bit. If you have good credit, you should be able to round up between three and five good options, and compare rates and fees, as well as potential repayment plans, and choose a loan that works best for your needs.
Image Credit: Monash University