Personal loans are a great option for those looking to consolidate debt, cover emergency expenses, or finance large purchases. With a single fixed-rate payment, personal loans are easier to manage than multiple credit cards with different interest rates and payment due dates. Borrowers who qualify for a personal loan with a lower interest rate than their credit cards can speed up their monthly payments and save money in the process. Founded in 1976, Bankrate has a long history of helping people make smart financial decisions.
We have maintained this reputation for more than four decades by demystifying the financial decision-making process and giving people confidence in their actions. Personal loans are borrowed money that can be used for large purchases, debt consolidation, emergency expenses, and much more. These loans are repaid in monthly installments over the course of a few months or more than a few years. It may take longer depending on your circumstances and the diligence with which you make payments. After you are approved for a personal loan, the funds you receive will be deposited into your bank account in a lump sum.
The transfer can take as little as 24 hours or a few weeks, depending on the lender. You will need to start making monthly payments as soon as the loan is disbursed. Debt consolidation is one of the most common reasons to apply for a personal loan. When you apply for a loan and use it to repay multiple loans or credit cards, you're combining all of those outstanding balances into one monthly payment. This pooling of debts makes it easier to set a time frame for paying your balances without feeling overwhelmed. If you need money for an emergency, using a personal loan instead of a payday loan can save you hundreds of dollars in interest charges.
According to the Federal Reserve Bank of St. Louis, the average APR for a payday loan is 39.1 percent, while the maximum interest rate on a personal loan is typically 36 percent. Personal loan funds can help you move your household belongings from one place to another, buy new furniture, transport your vehicle across the country, and cover any additional expenses. Using a personal loan for moving expenses can also help you stay afloat if you move somewhere without work. This way, you can avoid looting your savings or emergency fund.
Even with an unsecured personal loan, of course, not making payments on time can be detrimental to your credit rating and severely limit your ability to get credit in the future. FICO, the company behind the most widely used credit score, says its payment history is the most important factor in its formula, accounting for 35% of its credit score. A personal loan can help improve your credit score if you make all your payments on time; otherwise, it will hurt your score. That said, borrowing money you don't really need in the hope of improving your credit rating is a dangerous proposition. It is better to continue to pay all your other bills on time and at the same time try to maintain a low credit utilization rate (the amount of credit you are using at any given time compared to the amount available to you).
A personal loan can be used as a form of debt consolidation, especially with credit card debt. It's also a popular reason people apply for a personal loan. Personal loans charge lower interest rates compared to credit cards, especially if you have good credit. The best personal loans charge an interest rate as low as 4%, well below the double-digit percentages that most credit cards charge. You can apply for a personal loan, pay off your outstanding credit card balance, and then make a payment to your new personal loan servicer. Payday loans are short-term, high-interest loans that usually require repayment when you receive your next paycheck. Applying for a personal loan is a fairly straightforward process, and many lenders now allow you to apply online, so you can (and should) check with multiple sources to try to find the best interest rates and fees. Finally, if you have a tight monthly budget, a personal loan may not make sense to you, says Anastasio.
At the end of the day, a personal loan can be used for almost anything, which is why it is classified as “personal”.As with any major purchase, financing an expensive event such as a bar or bat mitzvah, an important anniversary party or wedding could be less expensive if you pay for it with a personal loan rather than a credit card. Once you have all the facts decide if the benefits of a personal loan outweigh the drawbacks before committing. If you suddenly need to buy a new washer and dryer but don't have the funds on hand, a personal loan can bring you relief. Most personal loans are not only unsecured which means that the lender does not require collateral but they also have competitive interest rates and zero fees. Lenders also often list on their websites the range of interest rates available for their personal loans. In this situation you will pay interest on your personal loan and you may wonder if the interest you pay is tax-deductible similar to the mortgage interest deduction.
If you don't have that much money on hand you may need to take out a personal loan to pay for moving expenses. If you need money right away to cover bills emergency expenses or anything else that needs immediate attention you can apply for a personal loan. Most personal loans have fixed interest rates meaning your payments will stay the same every month. Consumers with excellent credit histories may qualify for personal loan rates in the 6-8 percent range.