All You Need to Know About Personal Loans
Personal loans, sometimes called unsecured loans, allow flexible use and offer short- to moderate-term repayment options and quick funding. Their versatility and convenience make them a popular choice for borrowers of every financial standing. Let's look deeper at personal loans, their pros and cons, and how they work.
How personal loans work
If you're interested in taking out a personal loan, visit your credit union in person or online, complete an application, and pending approval, you can walk away with the lump sum you requested, typically within one to three business days. You'll need to repay the principal of the loan, along with interest, over the loan's term, which can be as short as six months or as long as seven years, depending upon your lender.
Unlike most other loans, like home loans and auto loans, personal loans are not intended to be used for a single, specific purpose. Once the money is in your hands, you can use the loan however you please. Some popular uses for personal loans include:
Purchasing a recreational vehicle, like a boat or ATV
Funding an Adoption
Covering medical bills
Paying off credit card debt
Covering a large purchase of any kind
Paying for a dream vacation
Funding a wedding
Personal loans are an easy and convenient way to quickly get a lump sum of cash for almost any possible use.
Pros of personal loans
There are several distinct advantages to borrowing money through a personal loan.
First, personal loans give the borrower the freedom to spend the funds in any way they choose. The lender won't ask for evidence of how the money was spent, nor will they care to know. The borrower has complete discretion over the money.
Second, most personal loans are unsecured. This means no collateral or a valuable asset is backing up the loan. Consequently, unlike other loans, which put the borrower's assets at risk of being repossessed if they default, there is no risk to the borrower's property or possessions through a personal loan.
Finally, applying for a personal loan tends to be much faster than applying for most other loans. You'll need a decent credit score and proof of income, but if your finances are in order, approval can happen in 24 hours or less.
Cons of personal loans
There are some disadvantages to personal loans that borrowers should be aware of before applying.
First, as unsecured debt, personal loans not backed by collateral will likely have a higher interest rate than loans borrowed against an asset, like a home or a car. The most recent data on the national average interest rate on unsecured loans is 9.28%APR* for credit unions and 10.21% for banks. In contrast, the average interest rate on 60-month new car loans is just 3.45% for credit unions and 5.10% for banks. It's a good idea to run the numbers to be sure you can comfortably meet the monthly payments before finalizing a personal loan.
Also, even if a personal loan is unsecured, a lender may be able to place a lien on the borrower's assets if the borrower is delinquent in their payments. While this only occurs in extreme cases, and the lender must sue the borrower in court before they can obtain a lien, it's essential to be aware of this possibility. If it occurs, the borrower could be stuck paying attorney fees, court costs, and the loan amount and late fees.
Finally, the amount of money you can borrow through a personal loan may be significantly less than the sum you can borrow through other loans. The exact amount you can borrow will depend on your creditworthiness, but as a general rule, when debt is not secured, lenders are more tight-fisted. Find out how much you'll be qualified to borrow before applying for a personal loan.
If you're ready to take out a personal loan, call, click, or stop by Members Choice CU today! With rates starting at just [X.XX%]APR, our loans offer qualifying members a convenient and affordable way to quickly borrow a large sum of cash.
* APR = Annual Percentage Rate.