In this comprehensive guide, we will share information related to personal loans and cover everything from understanding what a personal loan is to how to apply for one. This guide is beneficial for anyone looking to consolidate debt, want money for purchase, or cover unexpected expenses.
In a personal loan, you will get the money in the form of credit that typically offers a lump sum upfront and is paid back with predictable monthly amounts over a specific period of time.
Personal loans can help you make a big purchase or consolidate high-interest debts, like credit cards. They can also vary widely. Personal loans can be provided for different amounts, large or small, and with differing interest rates, fees, and repayment terms. They are secured loans, which require a lender to review the application process and typically require collateral.
Let’s get the information on personal loans, how do personal loans work and when they make good sense.
Use Personal Loans for Credit Card Consolidation
This personal loan means a lower interest rate than many credit cards, so you can combine multiple credit card debts into a single, lower-cost monthly payment.
If you use a personal loan to pay off credit cards, you’ll secure the loan and use the lump sum to pay off credit cards with higher interest rates. Going forward, you’ll make one monthly loan payment instead of payments to multiple cards, juggling due dates and balances. Your loan payment is predictable month after month, and you’ll pay less in interest charges over the life of the loan.
When you use a personal loan as a debt consolidation loan, you can clear your credit cards fast and boost your credit score.
However, your behavior regarding the loan is also part of your credit history.
Use Personal Loans information for Big Purchases
Another way to use a personal loan is for personal expenses, like home improvements, major medical bills, wedding or funeral costs, or unexpected expenses.
Some lenders have restricted personal loan terms on how you can use a personal loan. For example, if you plan to use a personal loan to pay college tuition or fees, you may not qualify with some financial institutions. In this personal loan example, talk to your lender about available student loans.
Some personal loans are labeled and marketed by their intended use. So a "personal loan" may sometimes be called a "home improvement loan".
How to get a Personal Loan?
Most personal loans are secured with collateral - property or an item of value the lender can claim if you don't repay the loan. The most common forms of collateral include your home, car, or a luxury item.
Start with your bank or credit union. See what types of personal loans they offer and compare loan terms with those other lenders offer.
In addition to lower interest rates, the best personal loans offer low origination fees and low or no prepayment penalties. These terms are another way to compare different loan offers.
The loan application requires reviewing your creditworthiness, with your credit card debt, credit score and debt-to-income ratio reviewed and used to determine the loan amount, the interest rate and other terms.
Personal loans work like most other forms of credit: your behavior with the loan is reported to credit bureaus like Experian, TransUnion, and Equifax. Late payments or partial payments can show up on your credit report.
Unsecured personal loans are also available but often require excellent credit and an exceptional credit history instead of collateral.
Personal finance loans fall under the "installment loans," meaning they're loans for a fixed sum with predictable monthly payments.
Consider Alternative Types of Credit
Common alternatives include a home equity loan or line of credit and a personal line of credit. The first two use the equity in and value of your home as collateral and to determine the amount and terms to offer you.
With a line of credit, instead of a loan's lump sum, you'll have access to cash and credit up to a set limit. If that makes sense, you can access a lump sum or use it like a credit card.
Use Bright Credit for debt consolidation.
Bright does not offer personal loans. But we can help pay off your card debts faster.
Bright Credit offers a low-interest line of credit designed to pay off card debt fast while saving you from high-interest charges. It works like a personal debt consolidation loan. Once approved, Bright uses your Bright Balance Transfer funds to pay off your high-interest cards, moving those debts to our balance transfer program with its lower APR. Over the months ahead, Bright automates your new repayments, too, so you pay less in interest, and it’s hassle-free. Bright Balance Transfers offers credit lines of up to $8,000 at APRs starting from 9%, depending on your eligibility.
Bright Credit is a versatile line of credit that allows users to choose their monthly payment above the minimum. You can balance transfers and reduce their outstanding principal balance by paying more. The limit of this card is between $500 to $8,000, and the annual Percentage Rate (APR) is between 9% and 29.99%. This Credit does not charge application, origination, late, or prepayment fees. The monthly minimum payment is 3% of the outstanding principal balance plus accrued interest, ensuring borrowers can manage their payments effectively.
Bright Credit offers a seamless process for managing your finances. Here is how it works:
- First, download and start your application. This will allow you to check your rate and see if you qualify for a line of credit.
- Once you checked the rate, review the offer, including your credit limit. If you're satisfied with the terms, accept the offer to proceed.
- With this new line of credit, you can refinance multiple cards up to your credit limit. This allows you to consolidate your debt and simplify your payments.
- Ensure to pay at least the minimum payment each month. This will keep your credit card scores and help you manage your debt.
- You can refinance more of your credit card debt as you pay down your balance. This allows you to continue consolidating your debt and take advantage of Bright Credit's flexibility.
FAQ's
1. Who is eligible for a personal loan?
Eligibility criteria for the personal loan: You must be age 18, be a UK resident, have a regular income, and not have a bad credit history.
2. For which purposes can I use a personal loan?
You can use personal loans for various purposes, such as home improvement, car purchases, debt consolidation, or unexpected expenses.
3. What Happens If I Miss a Payment?
If you miss a payment on your loan, it can negatively impact your credit score and may result in an additional penalty. If you miss a payment mistakenly, you should contact your lender as soon as possible to avoid default.
4. What is an unsecured personal loan?
An unsecured personal loan is a type of loan where you borrow money from a lender without giving any collateral or security. The lender checks your creditworthiness and gives a loan based on your ability.
