From consolidating debt to an emergency renovation at your home, multiple reasons exist to apply for a personal loan. There are circumstances when your existing savings and income flows must be improved to care for your expenses. You might want to upgrade your car or have a party for a little one. There are a few expenses that are unplanned and cannot be postponed. This is where a personal loan could be highly beneficial. Besides meeting unexpected expenses, personal loans could be extremely efficient in debt consolidation.
This blog discusses the meaning and implications of personal loans in the United States. Besides this, it explores the top reasons to apply for a personal loan and the general procedure to follow to get your loan application approved.
What is a Personal Loan?
Before understanding the process of applying for a personal loan, it is essential to understand its meaning. Loans are generally categorized into secured and unsecured. Secured loans refer to the amount of money a bank or financial institution loaned in exchange for security (usually a high-value asset). On the other hand, unsecured loans refer to the amount lent by a bank or financial institution without any security mortgaged by a borrower. Such loans are riskier (from the financial institution’s perspective) and often charge a higher interest rate.
A personal loan is a type of borrowing from banks, online lenders and credit unions in the United States for unpredictable expenses. It is not backed by any collateral asset such as a home, land or jewelry. A borrower is provided the facility to repay a loan in fixed monthly installments and interest. The rate of interest on personal loans is typically higher than usual special purpose loans. Based on the loan requirements and after the assessment of individuals’ credit scores, the rate of interest in the US on personal loans can be between 10%-36% APR.
There are no particular limitations for which the amount availed from personal loans could be utilized. The most common usages include debt consolidation, home improvements, medical expenses, education costs, or even to fund a vacation. More on the purpose and requirements of personal loans shall be discussed in the next section.
When Do You Need a Personal Loan?
If you have to apply for a personal loan, you fall into the following categories of individuals. As explained before, there might be certain unprecedented circumstances where one needs to avail personal loans. There might be unique financial situations when availing personal loan becomes necessary. Here are a few conditions when you need a personal loan:
- You have to meet some urgent expenses: There could be numerous examples depending on each individual. There can be weddings, education, travel, vacation, or any significant purchases the individual has to take care of.
- You need more savings: To meet such unplanned expenses, you must have savings. However, if you do not have such funds available, availing a personal loan becomes an option.
- You want to avoid touching your savings: There can be a chance that your savings are invested in illiquid funds, which you do not wish to touch at a particular time. In such cases, taking a personal loan helps to overcome problems.
- You do not want to max your credit card: Even though credit cards provide additional credit facilities, you do not want to do it because of the high-interest rates and the subsequent impact of such action on your credit score.
- You do not have collateral: In cases when you do not have assets to mortgage as collateral security, taking a personal loan can be an excellent idea.
You can contact your nearest bank or apply for a personal loan online for a quick turnaround.
Top Reasons to Apply for a Personal Loan
A number of prominent reasons why people apply for a personal loan include:
An individual with multiple debts (such an unprecedented outstanding medical bill or car repair) can avail a personal loan to repay all other installments and have a single monthly payment consolidated. This helps save money as personal loan rates could be significantly lower than credit cards and other unsecured loans.
Home Renovations and Improvements
Your residence may need immediate improvements for your safety and well-being. This is where such personal loans could be beneficial as they provide funds needed to remodel or upgrade your home without tapping into savings or using credit cards which generally have quite high interest rates.
Other emergency expenses such as medical, car repairs or unemployment could be covered through personal loans, which are easy to avail and financial institutions quickly disburse the amount with minimum paperwork.
There could be situations where a person might not have enough savings or funds for different purposes such as marriage, travel, leisure or making major purchases. In such situations, availing a personal loan can be an excellent decision as it helps make up the shortfall quickly. As explained before, availing a personal loan in most US states is quite simple; hence, one can access additional funds without any hassles.
How to Apply For a Personal Loan?
If you live in any state across the US and wish to avail a personal loan, here is a step-by-step guide tailored to understand how to apply for a personal loan:
- The first step is to evaluate your requirements and repayment capabilities.
- Then check the credit score as it will directly impact the rate of interest offered by a bank or financial institution.
- The third step will be researching and evaluating the lenders based on interest rates, repayment terms, fees, and customer reviews.
- Further, you must gather all the documents and information the lenders need.
- The fifth step will be to fill, review and submit the loan application with the chosen lender.
- Finally, wait for approval and disbursal. A few online lenders facilitate credit in a matter of a few minutes.
Personal loans often need to be understood and understood by individual borrowers. Compared to other credit and loan facilities such as credit cards, these loans are highly effective and have a lower interest rate. If you apply for a personal loan, it helps in meeting last-minute requirements without worrying about collateral. The repayment process is also relatively smooth and it could be a tool used for debt reconsolidation.