Consumers take out personal loans for a variety of reasons: consolidating debt, home repairs, emergency situations such as medical bills or unexpected repairs, or even to finance a dream vacation. No matter what you may choose to use your personal loan for, there are many different ways to shop for and secure the loan that is best for you.
The two basic types of personal loans are secured and unsecured.
- Secured: A loan based collateral. The consumer provides collateral, such as a house or car, which gives the lender a lower risk for repayment.
- Unsecured: A loan based solely on the borrower’s promise to repay. These loans demonstrate greater risk to the lender and may have a slightly higher interest rate. For consumers with bad credit, an unsecured loan can be ideal, and also serve as a method of rebuilding their credit score.
Most personal loans offer low interest rates, rates close to prime or only a few points higher. These low rates are beneficial to consumers for a variety of reasons:
- They help save money by consolidating higher interest rate debt into a lower interest personal loan.
- Lower interest rates help consumers pay off their debt sooner.
- A low interest personal loan helps free up money to help with savings or unexpected bills.
A personal loan with a five percent or even an eight percent rate can save hundreds or thousands of dollars over the course of the debt. This leads to consumers having the ability to pay off their debt sooner and free up money to be used for other things, such as savings or unexpected repairs or emergency situations. These personal loan rates are extremely beneficial to consumers who take out loans to finance a variety of wants and needs.
There are countless different personal loan lenders such as banks, credit card companies, or even some mortgage lenders. Researching a personal loan before signing can also help save money in the long run, plus it is important to make sure you are getting the best deal possible.
One of the most effective and simplest ways of researching a personal loan is by using a personal loan calculator. This tool will allow you to determine exactly how much you need to borrow, how long it will take you to repay your debt and how much you will end up paying by the time you have paid off your debt.
Depending on the type of loan you qualify for, the interest rate may seem the same as a credit card at, for example, 10 percent or a little higher. How does this work to your advantage? Simple. Say you have about $10,000 you owe on a few different credit cards with high interest rates, around 15-20 percent. If you were to just pay the minimum on the cards, you could end up paying nearly $60,000 and it could take almost 30 years to repay all the cards, assuming of course that you do not make any additional purchases while paying off the balance. A personal loan with a five year repayment with a 10 or even 12 percent interest rate will only cost between $13,000 and $15,000 and run nearly $75 less per month.
A personal loan is one of the simplest ways of paying off large amounts of debt or financing repairs or even a dream vacation for much less. Personal loans can save consumers thousands of dollars when used correctly. It is important to research all of your options before borrowing and select the lower interest personal loan that is right for you and fits your needs.