Should I Get a Personal Loan?

What are the reasons to get a personal loan?

When compared to other types of financing, such as credit cards, personal loans are often the better choice because they come with lower interest rates and the ability to borrow larger amounts of cash. Personal loans are also more likely than credit cards to accept applications with a cosigner, which can be of great benefit to those with poor credit or low income.

How do personal loans work?

Personal loans work by depositing a lump sum of cash into your bank account in exchange for an agreement to repay the loan over a set period of time. Personal loans fall under the umbrella of a particular type of financing known as an installment loan. With an installment loan, the loan balance is paid back throughout the loan term with a set monthly payment (or installment) and usually a fixed interest rate, although variable rates are an option.

How do you choose the right personal loan?

Just as you would comparison shop for any other major purchase like a car or a home, consumers can stand to benefit greatly from shopping around for financial products like personal loans. In order to find the best deal, you'll want to look at each loan's potential interest rate, origination fee, loan terms, and any other fees that may come with the loan.
Scoring a lower interest rate can save you thousands of dollars over the lifetime of your loan, so it really pays to do your research. Oftentimes, credit unions and online lenders offer better deals than traditional banks do, so be sure to compare personal loans from a variety of different financial institutions.
There are other factors to look at when choosing a personal loan as well. These considerations include whether or not you need a cosigner, the loan requirements, and potential loan amounts. For example, if you and your spouse want to apply for a loan together, you will want to find a lender that allows joint applications. Another example could be if you have a credit score of 600, you will need to find a lender that can qualify borrowers with a 600 credit score. Most lenders can share their requirements in advance.
Getting prequalified can be a great way to shop offers and learn what a lender can offer without impacting your credit score. Getting prequalified is a great way to help determine what interest rate and other loan terms you can expect to receive once your loan application is officially approved. At Acorn Finance you can check offers from top national lenders with no impact on your credit score.

What are the advantages of personal loans?

There are many advantages of personal loans, which is why they are such a popular choice with consumers today. In comparison to other types of financing, personal loans are often the clear winner. For example, personal loans typically have lower interest rates than credit cards and may even charge less in fees and other charges. Many consumers also find managing the single fixed monthly payment of a personal loan much more manageable than fluctuating credit card payments. Personal loans also typically have fixed interest rates as opposed to credit cards which can carry a variable interest rate.

What are the disadvantages of personal loans?

While there are many perks to choosing to take out a personal loan, there are a few downsides too. Disadvantages of personal loans include the potential for hefty fees and penalties, steep loan requirements for minimum credit score and minimum annual income, and higher monthly payments than credit cards. In addition, interest rates can sometimes be higher with a personal loan than with other types of financing such as a HELOC, especially if you have poor credit.

When should I get a personal loan?

There are many occasions when getting a personal loan makes good financial sense. You should get a personal loan any time you need to finance a major expense and want to spread out the repayment of the funds over time.
Personal loans grant you fast access to cash that can be used for anything you have a need for. Some of the most popular occasions for getting a personal loan include life events like weddings and vacations, emergencies like medical bills or car repairs, debt consolidation, home repairs, major purchases, and any other large or unexpected expense.

How do you get a personal loan?

In order to get a personal loan, you will likely need to submit an application either in person or at the lender's website using your personal and financial information and credit history. You may also need to submit documentation proving your income, employment history, and identity.
Personal loans are offered by credit unions, banks, and even online lenders like LightStream, SoFi, Prosper, and Upgrade. Online lenders are increasing in popularity due to their speed and convenience. In addition, online platforms can allow you to shop multiple personal loan offers and lenders at once.
Getting a personal loan is now accessible to almost anyone, regardless of their income or credit score. If you do not meet the lender's requirements for a personal loan, you can apply using a cosigner who does or shop around for a different lender who can approve your particular application.

Can I use a personal loan for anything?

The funds from taking out a personal loan can be used for nearly anything you wish. Once you have received the funds, banks and other lenders do not typically monitor to make sure you are spending your cash on anything in particular. This is in contrast to other types of loans that are designed to finance a specific purchase such as a vehicle loan, mortgage, student loan, or business loan. With a personal loan, you can use the money for debt consolidation, home repairs, vacations, major purchases, educational expenses, medical expenses, emergencies, and any other personal expense. Personal loans often have better interest rates than other types of financing, so they can be another alternative to using credit cards or taking out a loan that is earmarked for a specific purpose.

What are the reasons to avoid getting a personal loan?

There are a few occasions when a personal loan doesn't make the most financial sense.
· Discretionary spending – If your personal spending is going to be on an ongoing basis for a series of smaller purchases, it may make better sense to fund your purchases by using a credit card. Personal loans only give you access to a lump sum, which can be a disadvantage in some cases compared to credit cards which allow multiple purchases over time.

· Medical costs – You may want to avoid getting a personal loan when paying for medical expenses, because there are other alternatives to pay for these bills with lower interest. For example, the healthcare credit card CareCredit is designed for use with doctors, hospitals, dentists, and other medical facilities. Applicants for CareCredit often qualify for an introductory period with no interest, making it a better choice than a personal loan.

· Emergency expenses – In a true emergency, you may need access to funds within minutes or hours. Although personal loans can be funded very quickly, you may have better luck borrowing money from friends or family or going in person to a lender who offers payday or car title loans. In a pinch, timing is everything, and even the most convenient personal loan from an online lender may be too slow to meet your needs.

What is a good personal loan APR?

While the APR that you can expect to receive will vary depending on a variety of factors including your loan terms, lender, and your own personal credit score and income qualifications, in general you can get a good idea of what a good personal loan APR is by looking at the industry standard. According to Experian, the average APR on a personal loan is just over 9%. When you are looking for a personal loan, seek out an APR that is as close as possible to this number and you can rest assured you are getting a good deal.

Can you repay a personal loan early?

With any financial product, you should be able to make extra payments or pay off the balance whenever you would like. The only caveat is that some lenders may charge prepayment fees and penalties for repaying a personal loan early. If you anticipate that you will want to pay off your loan early (which is a very good thing) you'll want to read through the loan terms in order to make sure that your lender does not charge any of these fees. However, even if you will be charged a fee for paying off your loan early, you should never let this deter you from paying. Getting out of debt early is always a good thing and should save you money in the long run as well as providing the peace of mind that comes with not having creditors over your head.

What happens when you finish paying off a personal loan?

When you make your final loan payment, the lender should report your account as closed to the 3 major credit bureaus, which can affect your credit. For example, if your loan was the oldest item on your credit report, closing it can cause your score to drop due to the change in length of credit history. This is because credit history length makes up a 15% percentage of your FICO credit score.
If you were paying off your personal loan at the same time that you were paying off other debts, you can now take some of those funds that you were allocating from your monthly budget and apply them towards the balance of your credit cards, student loans, and any other high interest debts that you wish to get rid of next.
You can then take out another personal loan if you need access to more funds, although some lenders will allow you to have more than 1 personal loan at once making this wait unnecessary.

What are alternatives to personal loans?

Alternatives to personal loans include credit cards, home equity loans, home equity lines of credit, payday loans, car title loans, and borrowing money from friends or family. Any of the above options will give you access to cash that can be used for any expense that you need. However, they all have their own set of pros and cons.
Payday loans and car title loans are both risky forms of taking out money to cover your short-term expenses. In the case of payday loans, you can get stuck in a cycle of borrowing and repayment that can be very difficult to get out of. Car title loans pose a risk to the borrower since they are a form of secured loan where the loan is backed up by your asset as collateral. Therefore, in the event that you are unable to repay the loan, you will lose your vehicle to repossession by the lender.
Borrowing money from friends or family can put a strain on the relationship, especially if you find yourself unable to repay. It may be difficult, if not impossible, to find a loved one who is willing to lend you money. If you do have a loved one who wants to help you, it may be more beneficial to ask them to be a cosigner on a personal loan for you to get access to more funds and better interest rates. While they will still be on the hook for your loan if you default on its repayment, it is generally a less risky move financially than just giving out cash to a loved one.

Is a personal loan bad for credit?

While taking out a personal loan can cause a slight initial drop in your credit score, in the long run it should not have a negative effect on your credit report unless you default on the loan or rack up a bunch of missed or late payments. This temporary score drop is due to the fact that a small part (10%) of your credit score calculation is based on new credit, or the number of accounts you have recently opened.
In addition to opening up a new account that will be listed on your credit report, you may also see a slight hit on your score due to undergoing the hard inquiry during the application process. One way to avoid this is by getting prequalified for your new personal loan before applying rather than completing multiple loan applications in order to compare options.
For these reasons, you may want to avoid taking out a personal loan if you are in the process of seeking out any other major type of financing. For example, if you are in the middle of applying for mortgages, you will probably benefit from waiting to get that personal loan for the home repairs until after you close on the property. In fact, most mortgage lenders will recommend that potential borrowers refrain from taking out any other type of financing during the underwriting and approval process.

What is the best reason for a personal loan?

The best reason for taking out a personal loan is any reason that helps you and your family meet your financial needs. There are many occasions in life where you may need to finance a purchase or other large expense through a loan instead of paying for it upfront. A loan allows you to spread out the cost of the purchase over equal monthly installments with a low interest rate. In general, personal loans are recommended for any situation that requires a large upfront payment, while credit cards are the better option for giving consumers access to ongoing funds for smaller expenses. Additionally, most lenders of personal loans can deliver the funds to you within a few business days, making them perfect for emergencies. Many online lenders can even approve you for cash within a few hours and deliver the funds to you within 1 business day, although funding times can vary. So in summary, when you need access to money to fund a major expense, a personal loan is often the best option for all of the reasons listed above and more.