Unlike credit cards, personal loans typically carry fixed interest rates and are paid off in up to seven years. That means your monthly loan payment won’t change and it can help you budget your finances over time.
You can find lower rates with a personal loan when you have a good credit history and a solid debt-to-income ratio. This is because lenders will look at your past repayment history, current debt load and income to determine whether you can afford a personal loan without overextending yourself financially.
Banks, credit unions and online lenders offer personal loans at competitive rates for well-qualified borrowers. Aside from checking your credit, you can also pre-qualify with lenders to see what type of loan and interest rate you may qualify for before completing an application. This can help you avoid multiple credit inquiries and credit score drops and ensure you don’t borrow more than you need.
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While it’s tempting to use a personal loan for anything from home remodel projects and weddings to paying surprise medical bills, only borrow the amount you need. When you take out a personal loan, it can add to your overall debt load and impact your ability to save for future expenses. For this reason, you should only borrow the amount necessary for an emergency expense or a financial goal like building an emergency fund or saving for retirement.
As borrowers defer paying their debt, the amount of credit available decreases and that can lead to higher interest rates. Fortunately, if you are able to pay off your personal loan early, you can save thousands in interest payments. This will give you extra money in your budget that you can use for daily expenses or toward other important financial goals.
If you don’t want to offer up your assets as collateral, you have a number of non-collateral loan options. For example, the Small Business Administration offers a variety of loan programs that don’t require collateral. Some of these include the 7(a) program, which provides up to $50,000 for working capital.
Generally, non-collateral loans are approved more quickly than secured loans. This is because lenders don’t need to assess an asset’s value before approving the loan. Additionally, non-collateral loans typically have less complex documentation requirements than secured loans, making them easier to complete.
With that said, just because a loan doesn’t require collateral doesn’t mean that it will be easy to obtain. Most lenders will still run credit checks and assess your financial situation before approving the loan. Additionally, if you default on your debt, it will be recorded on your credit report and can impact your ability to secure other types of financing.
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