Personal loans can be a great way to get money quickly and get interest rates that are often lower than credit cards. These loans can be a good way to cover big expenses such as emergencies, major home repairs, or other unforeseen costs. Most personal loans don’t require collateral, and you can get them quickly.
For example, say your vehicle breaks down all of a sudden and you need to pay for repairs right away, a personal loan can help you borrow money without having to wait until payday and without needing to provide collateral to protect the lender. You can also use a personal loan for larger expenses that aren’t covered by your credit cards – like setting up a new business – and then pay it back over time.
Types of Personal Loans
There are two key types of personal loans. The first is referred to as a Secured Personal Loan, and the second is an Unsecured Personal Loan. With a secured loan, you offer the lender something of value as the collateral – such as your house, car, or the cash in a CD or savings account. This can be risky because if you default on your loan, the bank will seize your collateral to pay off the debt you owe. But most personal loans are unsecured. This means you don’t have to provide collateral to borrow a loan.
Advantages of Personal Loans
They Have a Number of Uses
Many types of loans, like student loans and mortgages, can only be taken for a specific purpose. However, personal loans come with no such restriction.
You Don’t Need to Provide Collateral
Most personal loans do not require any kind of collateral. This makes these loans a good choice for people who do not have anything of value to borrow money against.
Rates Are Reasonable
Personal loan rates are usually cheaper than credit card rates. While personal loans usually come with an interest rate of about 5%, credit cards charge at least 13%.
Disadvantages of Personal Loans
Fixed Payments
When you use your credit card, you can take as long as you want to repay it back. However, with a personal loan, you’ll need to make fixed payments every month.
Prepayment Penalties
Many lenders charge prepayment fees if you repay your loan ahead of schedule.