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A personal loan is a convenient affordable option for many people. Learning about how personal loans work can help you determine if one is right for you. Let’s demystify personal loans by answering common questions about them.
Personal loans are helpful when you need to consolidate debt at a lower rate, pay emergency expenses quickly, or fund a project such as a home renovation.
If you are making the minimum payments on your credit card and not seeing your balance decrease, a personal loan may be the right option to consolidate your debt into one payment. If you need more time to pay off a purchase you made on your credit card, a personal loan will most likely offer a lower interest rate than your credit card.
Applying for a personal loan is a simple process. You can apply for an Alliant personal loan online, and you could receive same-day approval and even a same-day deposit into your account. However, it’s important to make sure you can afford to make the new payment amount on time every month.
Here are a few instances where a personal loan may be a good option.
A personal loan works very similarly to any other loan, but no collateral is required. Borrowers receive the loan amount in a lump sum, and then make monthly payments to pay off their debt.
Personal loans come with a variety of terms and interest rates depending on your needs. “Term” is the amount of time to pay back the loan; “interest rate” is the amount a lender charges you and is a percentage of the amount loaned. You can obtain a personal loan with terms ranging from one to five years at various institutions. Loan amounts typically range from $1,000 to $100,000.
The loan amount will depend on how much you apply for and are approved for (if you’re approved). It’s a rule of thumb to only ask for what you need so you don’t pay interest on more than you wanted.
Many lenders offer a decision on your loan application the same day, and if you’re approved, will either write you a check or deposit the cash in your account the same day.
As with everything, you’ll want to shop around to find the personal loan that meets your needs.
Pro tip: Look for an online personal loan that does not have a prepayment penalty. Without a prepayment penalty, you’ll be able to pay off your loan early without an extra fee.
There are generally two types of loans: Secured and unsecured. The main difference is in collateral. With a secured loan, you agree that if you stop making loan payments and default, the lender can take the collateral (like an auto or home loan). Personal loans are usually unsecured, meaning no collateral is needed.
A credit card is what’s considered revolving debt, meaning that if you charge $100 on a card with a $1,000 limit, and you pay back that $100, you will once again have $1,000 to spend. With a personal loan, known as fixed debt, you receive a $1,000 lump sum up front and then pay it back in monthly payments.
A personal loan also offers you the ability to have cash, which is better for those times when credit cards are not useful or accepted forms of payment. For example, when hiring a contractor for home repairs, cash is typically preferred.
Some personal loans may also offer a lower interest rate than a credit card. However, you should watch out for origination fees, which can impact the total cost of the personal loan.
Personal loans can be used for many things. That includes debt consolidation, emergency expenses or home renovations. When you apply for a personal loan, you may be asked to specify the purpose of that loan to make sure it conforms to the lender’s requirements. Other loans, such as student loans or mortgages, are for specific purposes and you must abide by those terms of use. With a personal loan, you have more freedom to use the loan for a variety of purposes.
Applying for a personal loan is simple but it does require running a credit report . A lender will want to ensure you’re a good candidate for the loan and you’re likely to pay the loan back in full. When you apply for a personal loan or any other type of loan, the lender will consider your credit score, credit history, your income and other factors. Some lenders perform a hard credit check that stays on your credit report for about two years when you apply. While it's on your credit report, it could lower your score by a few points. Other lenders perform a soft inquiry or soft credit pull, which do not have any impact on your credit score.
Making late payments or defaulting on your loan can lower your credit score. If you make your payments on time, you can raise your score instead.
Your credit score can impact your personal loan rate and monthly payments. Before applying, ensure your credit score is correct by reviewing your credit report. You are entitled to free copies of your credit report from Experian, TransUnion, and Equifax (the credit bureaus) every 12 months. You can request a copy from AnnualCreditReport.com. If there are any errors, you can dispute them.
When you apply for a personal loan, be prepared to provide financial documents like your most recent tax returns and bank statements. The lender will send you the terms of the loan after they approve your application. Make sure you read the contract carefully and only agree to the terms if you can afford the payments.
You can apply for an Alliant unsecured personal loan with a competitive rate online and receive same-day approval and even a same-day deposit into your account. Alliant’s quick, affordable personal loans can give you the cash you need, when you need it. Apply today!
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