Personal loans are good for a number of reasons. From planning your dream wedding to going on the perfect vacation, a personal loan may be a good option to consider for financing those special events. A personal loan allows you to borrow a lump sum of money and repay it over time, often at an affordable interest rate. Before deciding if a personal loan is right for you, there are a few things to know - starting with the types of personal loans.
There are two common types of personal loans: unsecured and secured.
Unsecured Loan
Most personal loans are unsecured. Unsecured simply means you don’t need to put up any type of collateral like a deposit account, house, or car. The amount you borrow and interest rate are determined based on your creditworthiness and ability to repay it. The funds can be used for almost anything. These include consolidating debt, refinancing an existing loan, paying for larger expenses, or vacations.
Another type of unsecured loan is a Personal Line of Credit. It works similarly to a credit card. It allows you to withdraw funds up to your credit limit, repay the funds, and borrow again without reapplying for the loan.
Secured Loan
A secured loan could be a good option for borrowers who may not qualify for an unsecured loan. This loan type requires no collateral to secure the loan. Also, this loan could be a good start if you want to establish or rebuild your credit. The funds can be used for debt consolidation, home improvement projects, planning your dream wedding, or to pay school tuition.
We offer a Personal Deposit Secured Loan that can be secured by your savings or certificate account.
Pros and Cons of a Personal Loan
Knowing the pros and cons of a personal loan will help you make an informed decision about whether it’s the right option to borrow.
Pros
- A personal loan can positively impact your credit score if payments are made on time. You are building a good payment history which counts for 35% of your overall credit score.
- The borrowed money can be used at your discretion. You’re not limited to what you can use it for – car repairs, vacation, debt consolidation, medical bills, and home improvement projects.
- No collateral is needed for a personal loan.
- You can budget the payments. The monthly payment and interest rate remain the same throughout the life of the loan.
- The loan application process is relatively quick and easy. If the loan is approved, funds are typically available within 1 – 2 business days. You may have the convenience of applying online which saves you a trip to the branch.
Cons
- A personal loan is a debt. If you consolidate your debt with a personal loan, you may be tempted to charge up your credit cards causing the cycle of debt to continue.
- If you default or make late payments on the loan, it will negatively impact your credit score.
- Borrowers with poor credit typically have higher interest rates.
Now that you know more about the different types of personal loans, you may be wondering what could you use the personal loan for. Here are a few ways you could use a personal loan.
Ways to use a personal loan.
Debt consolidation.
If you have a large amount of debt you’re trying to pay off, using a personal loan to consolidate your bills could be the solution to help you manage and pay off your debt. It could potentially help you pay off debt faster and save you money. In addition, the interest rates on personal loans are typically lower than the interest rates on a credit card, depending on your credit score.
Home improvement.
Depending on the home improvement project you want to take on, a personal loan may be a good option instead of using the equity in your home. This could be a good option for small and mid-sized home improvement projects such as replacing light fixtures, upgrading kitchen appliances, and landscaping. A personal loan doesn’t require collateral so there’s no risk in losing your property if you default on the loan. However, if you default on your loan, it could negatively impact your credit score.
Unexpected expenses.
From a car repair, death of a loved one to a visit to the emergency room, most of us have experienced an unexpected event at some point in our lives. Unfortunately, when the unexpected happens, the funds may not be available at that time to cover those unplanned expenses. A personal loan may be a good choice in these situations because it could provide a quick and easy way to cover those expenses.
A personal loan could be a useful tool. Weigh the pros and cons and evaluate your current financial situation before applying for a personal loan to ensure you’re able to repay the loan.