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Personal loans can help you finance some of life’s big purchases without the astronomical interest fees that generally come with a credit card. Personal loans are usually used for Personal Expenses – such as a home renovation, wedding, or even debt consolidation. They also usually carry a lower interest rate compared to credit cards, so they are usually an attractive financing option for someone who wants to avoid large interest fees.
No matter how you hope to use a personal loan, it is always important to do your research to ensure that it fits your financial needs. There is a lot of information available and analyzing it all can be overwhelming.
So, Select compiled a list of the most frequently asked questions on Google about personal loans and asked expert Leslie Taine, financial attorney and founder and director of Tayne Law Group, to provide answers. Here’s everything you need to know:
How do personal loans work and how do you apply for them?
Personal loans are what is known as installment credit. This means that it is a type of loan that must be repaid within a specified period of time. It differs from revolving credit, such as credit cards, which includes the ability to borrow more money while you continue to make payments.
“A lump sum will be approved,” Tyne said. “Every month, you’ll pay off portions of the loan in equal, fixed payments for a set period of time. Terms generally depend on your credit score.”
The interest fee will also be included in your monthly payment. The interest rate you pay is one of the terms that will depend on your credit score. In general, the better your credit score, the more favorable your loan terms. This could mean a longer loan period and even a waiver of the set-up fee.
But before you can be approved for a personal loan, you will need to go through the application process.
“The process can be done over the phone, online, or at a bank,” Tyne said. “You will fill out the application form and the lender will run a credit check.” Once you are approved, the lender will deposit the money directly into your checking account.
How do I get a personal loan with bad credit?
“It’s tough but you can still get approved for a personal loan with bad credit – you might pay a higher interest rate,” Taine said. “Some lenders have a minimum credit score required, so loans from these lenders will not be available to someone with bad credit.”
You can always check any credit score requirements with the lender Before Implementation. A personal loan for repayment, for example, requires a FICO score of 640 or higher for approval. Some lenders may list their requirements on their website but if you can’t find them, it doesn’t hurt to ask the lender directly.
Pay off personal loans
Annual Percentage Rate (APR)
The purpose of the loan
Debt Consolidation / Refinancing
0% to 5% (based on credit score and application)
Early payment penalty
5% of the monthly payment amount or $15, whichever is greater (with a grace period of 15 days)
According to Tayne, if you have bad credit, you may also sometimes need a co-signing partner, or you may need to provide collateral to secure the loan. Securing the loan with a personal item, such as a house or car, means that the lender can seize that asset if you fail to make the loan payments.
If you have a lower credit score, you can also consider a lender that does not charge any additional fees. The origination fee is calculated as a percentage of the loan amount and can reduce the total loan balance you actually receive.
So if you’re looking for lenders that charge set-up fees, you may have to adjust the amount of money you’re asking to accommodate the cost of the fee. Other than that, you might consider some lenders that don’t charge an origination fee at all, like LightStream or Discover, for example.
Of course, there are a lot of different options, so comparing offers is one of the best ways to make sure that you get a personal loan with the best interest rate and repayment terms. You can use this comparison tool from Even Financial to determine your best offers. The service is free, secure and will not affect your credit score if you do not apply for a loan.
Editorial note: The tool is provided and operated by Even Financial, a search and comparison engine that matches you with third-party lenders. Any information you provide is provided directly to Even Financial. Select He does not have access to any data you provide. Select may receive affiliate commission from partner offers in Even Financial Tool. The commission does not influence the selection in the order of the bids.
What is the benefit of getting a personal loan?
“There are some benefits to getting a personal loan, but it often depends on your credit score,” Taine explained. “If you have a great credit score and can get a low-interest loan, you can use the loan to make a large purchase that would have been paid for with a credit card.”
Credit cards tend to carry higher interest rates compared to personal loans, which means you’ll generally pay more when you use the credit card to fund a purchase. Therefore, according to Tayne, using a personal loan at a low interest rate essentially reduces the cost of the item. Of course, the best way to ensure that your personal loan carries the lowest possible interest rate is to ensure that you maintain a good credit score.
Sometimes, though, a credit card with a 0% annual interest period is likely to be a more affordable alternative to a personal loan. This is because you will not pay any interest on the credit card fees for the selected introductory period. For example, the Chase Freedom Flex℠ Card offers new cardholders 0% annual interest for 15 months on new purchases and balance transfers (after, 14.99% to 23.74% variable). There is an upfront balance transfer fee of $5 or 3% of each transfer amount, whichever is greater, on transfers made within 60 days of account opening. After that the amount is either $5 or 5% of the amount of each transfer, whichever is greater. For alternative options, select approx for other credit cards with interest-free upfront offers lasting 15, 18, and even 20 months.
Flexible Freedom Chasing℠
5% cash back on up to $1,500 on combined purchases in reward tiers every quarter you activate (then 1%), 5% cash back on travel booked through Chase Ultimate Rewards®, 3% On drugstore and dining purchases (including takeout and dine-in eligible delivery services), 1% cash back on all other purchases
$200 cashback after spending $500 on purchases in the first 3 months of account opening
0% for the first 15 months of account opening on purchases and balance transfers
14.99% to 23.74% variable
Balance Transfer Fee
An introductory fee of $5 or 3% of each transfer amount, whichever is greater, on transfers made within 60 days of account opening. After that, either $5 or 5% of the amount of each transfer, whichever is greater.
Foreign Transaction Fee
Is interest tax deductible on personal loans?
Some of your expenses can be deducted from your total income to reduce the amount of taxes you will owe. In this case, you will be paying interest on your personal loan and you may wonder if the interest you are paying is tax deductibleAnd Similar to the mortgage interest deduction.
According to Tayne, the interest paid on a personal loan is generally not tax-deductible. However, it may depend on the purpose of the loan. If you use it for business or education expenses (such as paying tuition fees), the interest may be tax deductible. But if you’re using the loan to cover a wedding or a home renovation, the interest fee is generally not tax deductible.
But before you write off anything, consult with your accountant to find out what may or may not be tax deductible.
How Much Personal Loan Can I Get?
“It depends on what the lender is willing to offer you based on your credit history,” Taine said. “Lenders may usually approve you for up to $100,000, but it depends on your income and credit score.”
If you’re not sure how much a particular lender will agree to, it doesn’t hurt to ask before you submit your application.
What is the average interest rate on a personal loan?
“Rates can range from 9% to 14%,” Taine explained. “However, there are some lenders with much lower rates. Sometimes, you can even get a reduced interest rate by setting up an automatic payment and making your monthly payments automatically.”
An automatic payment reduces the chance that you’ll make a late payment or miss a payment altogether. This is why some lenders are willing to give you a lower interest rate when you make monthly payments through an automatic payment.
Lenders usually list the interest rate range available for their personal loans on their websites. But if you can’t find it online, you can always make an appointment with them to ask before placing your order.
How long does it take to get a personal loan approved?
According to Tayne, it can take anywhere from one to seven days for a personal loan to be approved. Applicants can reduce the possibility of any delays in the approval process by ensuring that accurate information is provided when filling out the application form.
Are personal loans bad?
“There is good debt and bad debt but it depends on what you do with the loan and how it affects you,” Taine said. “Borrowing money on which you pay interest will cost you more than paying with cash. It can be easy to finance expenses with a personal loan in some circumstances. And if it fits with your overall financial goals, that’s a good thing. But if you’re trying to hit a round button in a square hole, It may not be right for you.”
She also explained that borrowers tend to take out personal loans in good faith, but later realize that it doesn’t fit their budget. or external circumstances may also affect a borrower’s ability to manage his loan balance; A borrower who took out a loan last year but was laid off by the pandemic may suddenly struggle to pay off their loan — even if their budget previously allowed some extra wiggle room.
You cannot control external conditions such as an epidemic. But when it comes to things you can Take control, make sure that you make decisions that fit your financial situation. Think about whether you really need the money and make a plan for how to pay it off. And it always helps to have an emergency fund in case things get messy.
Can Personal Loans Build Your Credit?
Personal loans can definitely help you improve your credit history. But there are also some situations in which it can harm you.
“If you don’t already have a great credit history, a personal loan can help you build a positive payment history,” Taine said. “And if you use the loan to pay off your credit cards, they can reduce your credit utilization rate. This can reflect positively on your credit report. But if the loan only adds to your debt, it is not likely to help you build credit.”
Personal loans can be a great tool to help you build a credit history or finance big expenses without paying high interest fees. However, like any other financial instrument, it is most useful when you have a plan for how to use it.
Editorial note: The opinions, analyses, reviews or recommendations in this article are those of the editorial board alone, and have not been reviewed, approved or otherwise endorsed by any third party.