Unless you’re up to living dangerously and getting unpleasant surprises, knowledge is something mandatory before taking out a loan. Whether we’re talking about payday loans, installment loans or personal loans, the same rule applies. It could save you from a lot of trouble, as you can avoid taking out a loan if the risks are too high.
That being said, if you were eager to learn more about personal loans, you’ve come to the right place. We collected some information in order to tell you what you should know regarding personal loans. Without further ado, let’s get to it!
- They Come in Two Types
Personal loans can be secured or unsecured. The secured ones are backed by collateral, like an asset or a savings account. If you’re not able to repay it, then the lender has the right to claim your asset as payment for the loan.
Concurrently, unsecured loans are not backed by collateral, and the lender decides if you qualify based on the financial history. In case you don’t qualify, or you seek a lower interest rate, some lenders can also give you the secured loan option.
- They Can Save You from the Debt Void
One way many people use personal loans is for debt consolidation. You may get a lower interest rate, and you also have an organizational advantage of only having one bill to pay monthly. Basically, it gathers all the bills into one, so you don’t have to stress with multiple payments.
- Banks Are Not the Only Way to Go
You can indeed obtain a personal loan from a bank, and that’s probably the first place coming to your mind regardless. However, the bank is not the only place where personal loans are offered, as there are other ways to obtain one.
For instance, online lenders, consumer finance companies, credit unions, and peer-to-peer lenders can also offer you a personal loan.
- It Can Impact Your Credit Score
During the application process, the lender will pull your credit as a part of the application process. Consequently, your credit score will slightly decrease. Whether it will increase afterward or not depends on you and how you pay off the loan.
- Personal Loans Are Not Long-Term Solutions
Although a mortgage is paid off over decades, personal loans are another story. They are usually paid off in seven years or less. In a way, this could be a good thing, because you won’t get to borrow money for longer than you need. Conversely, it also means that if you are trying to borrow a huge amount of money, the payments may be too high for you to keep up with if you take this type of loan.
Knowledge is power and having the proper information upon applying for a personal loan can be a life-saver. Not only that you’ll know the multiple ways in which it can help you, but you will also be aware of the disadvantages and you can avoid them.