If you’re willing to borrow money and pay it back through fixed monthly amounts, then a personal loan is the best option for you. Millions of Americans apply for personal loans every year to handle their unexpected expenses, consolidate debts, make home improvements etc. In fact, the number of personal loan holders augmented in recent years from 21 million to over 27 million. So, how are personal loans alluring more and more customers?

Personal loans are generally smaller loan amounts that are provided to consumers with good credit ratings at low-interest rates. In simple words, it is an unsecured loan that can be taken by individuals from banks and NBC’s (Non-Banking Companies) in order to fulfill their personal needs. This type of loan is granted on the basis of certain criteria like credit ratings, employment history, level of income, and repayment capacity. A personal loan is very much different from a car or a home loan because this type of loan is not protected against any asset. Since it is an unsecured loan, the borrower is not required to put up collateral like real estate property or gold to avail the loan provider in case of default. However, the interest rates on personal loans are quite high as compared to other loans due to involved high perceived risk.

As mentioned above, personal loans are easy to grab. You simply borrow money for a certain time period at fixed interest rates and you pay it back through fixed monthly payments. With the personal loan terms depending on a wide range of factors, this unsecured loan can be offered in amounts over $35,000. You can easily apply for personal loans and borrow amounts for any time length, be it 12 months or 20 years.

According to one of the reviews of personal loan terms, some lenders offer personal loans with an origination fee ranging between 1% to 8%. However, personal loan is a competitive business and therefore, many lenders do not charge any kind of fees-upfront from the individuals. The only thing to worry about with personal loans is the interest rates and the APR. Interest rates for personal loans are typically higher than that of secured loans like auto loans or home equity loans. Personal loans are not secured by any form of investment, thus, their interest rates are relatively higher. Sanctioning loan amounts without any collateral involves immense risks for banks and non-banking companies, so they charge high APRs and interest rates.

Types of Personal Loans

Following are the two types of personal loans.

• Secured Loans – This type of personal loans is backed by collateral like a CD or your savings account. In case of default, your lender will have the right to claim your asset for loan repayment.
• Unsecured Loan – They are not backed by any collateral. It is the lender who decides whether an individual qualifies for the unsecured personal loan based on their financial history.

If you are considering to apply for a personal loan, then here’s what you will need to qualify.

• Excellent Credit Ratings – Having high and excellent credit ratings will eventually put in a position to qualify for personal loans with best interest rates and terms. In fact, many banks and loan providing companies offer personal loans to individuals with credit scores as low as 580.
• Repayment Capacity – It is essential for the borrower to prove their loan repayment ability through their pay stubs and other employment evidences.
• Low Debt-to-Income Ratio – Debt to income ratio is actually determined by dividing your monthly recurring debt by monthly income. If your debt to income ratio is high, then qualifying for a personal loan could become challenging for you.
• Co-signer – In case of poor credit scores and low ratings, you may need a co-signer to help you qualify for your personal loan. It is imperative that the co-signer should have good credit scores.

Below listed are some of the potential uses of personal loans.

• Debt Consolidation
• Pay for medical expenses
• Home Improvement
• Car Purchase
• Starting a Business
• Moving Expenses
• Boosting Credit Scores
• Other Emergency Expenses

When it comes to choosing the best personal loans, a lot of people get confused. Determining the best personal loans depends on many factors, including your credit scores and the amount that you need to borrow. Well, here are some useful tips to choose the best personal loans to complement your goals.

• Shop Around with Multiple Lenders – Shopping around and comparing the rates as well as loan terms of different lenders is one of the best ways to determine the best personal loan for your needs. You can also conduct online research to explore the options of different loan providers.
• Reading the Fine Print – Always opt for loan plans that offer clear terms and conditions and fixed interest rates.
• Hunt for Low Cost Plans – Getting quotes from different lenders is a great idea to find low-cost personal loans for your needs.
• Online Reviews – With the help of online reviews, you can easily learn about different personal loans alongside gauging the quality of loan providers.

Personal loans are a great financial option for people who’re in need of additional cash for specific purposes.