Personal loans: The what, why, when and how
This is a paid post on behalf of Discover Personal Loans written by Money Q&A.
Personal loans are a smart financial tool, which I'd venture to say many people don't know enough about. Should you use them? Who should apply for them? What are the reasons to use personal loans? Can personal loans help you consolidate and pay off debt? But before I answer these questions, know this: personal loans can help consumers ease some of their financial troubles and reach financial goals, and I think it's beneficial to have them in your financial toolkit.
What Is a Personal Loan?
Personal loans are unsecured loans. Unlike secured loans, like a car loan, a personal loan isn't guaranteed against a physical asset. With a secured loan, the bank can repossess your assets and resell them if you can't repay the debt. The same applies for your mortgage. If you don't pay your home loan, you could face foreclosure.
A personal loan is different. It's a signature loan that doesn't need collateral to be secured. With a personal loan, you are only responsible for paying back your loan on time, typically with fixed monthly payments.
People use personal loans to consolidate debt, finance unexpected expenses or pay for big ticket items. Plus, I think the best part of a personal loan is that it can be a flexible loan product. For example, you can choose the amount you want to borrow and your repayment term. In addition to offering options for those loan features, some lenders are also empowering consumers to shop around for the best rate. More specifically, some lenders now let you preview your interest rate before you officially apply for the loan. Discover Personal Loans is one example of a lender that not only allows you to preview your rate but choose your loan amount up to $35,000 as well as your repayment term from several options.
Personal loans can have fixed interest rates and fixed terms. With a personal loan, you'd know from day one exactly what your monthly payment amount will be. You'd also know exactly how long you will have to pay the loan back. Some personal loans include origination fees or adjustable rates that can sneak up on you if you aren't paying attention.
Benefits of Using a Personal Loan
There are several reasons why you may want to take out a personal loan. I've personally used these loans to consolidate higher interest debt from various bills. Consolidating debt with a higher interest rate can decrease the total amount of interest you pay on all of your debt, potentially saving you hundreds or even thousands of dollars.
A personal loan can also help you pay off your higher interest debt faster and focus your attention on only one fixed debt payment instead of several smaller ones at varying interest rates. Personal loans for debt consolidation work best for people with the ultimate goal of becoming debt free.
You should have an emergency fund that can help ease the blow when unexpected bills and big life events happen. But, there are times when your emergency fund may not be enough. That's when a personal loan can help you bridge the gap. Personal loans are a tool to manage unexpected or pricier expenses when savings aren't enough or they are intended for something else.
There are unexpected finances in life that people may not always have the savings or income to cover. Or maybe the expense would exceed their credit card limit, nixing the credit option as a way to pay the bills quickly.
While a personal loan has many uses, unplanned medical bills are a common unexpected expense. A personal loan may be a good option for consumers facing unexpected medical bills or other expenses that they can't cover with savings, and the loan could have a lower interest rate than some other borrowing methods.
Personal loans can also be used to finance more big ticket items or life events. Some examples include wedding costs, financing a trip abroad for your family, and purchasing energy efficient appliances.
What to look for when searching for a personal loan
Personal loans can help you save money and help you take control of your higher-interest debt. Features you should keep in mind when looking for a personal loan include:
- Flexible repayment terms
- Set monthly payments
- Excellent 100% U.S.-based customer service
- Same-day decision in most cases
- Option to pay off creditors directly
- No origination or processing fees
- No closing or early payment costs
- Check your rate and monthly payment before you apply
A personal loan from Discover Personal Loans covers all of these benefits and can help you get a loan that fits your needs, with loans up to $35,000 with loan repayment terms up to 84 months. It's easy to get started online or by phone. You can start the application process at any time. To learn more about Discover Personal Loans and what you need to apply visit www.discover.com/personal-loans/.