Personal Loans

For some consumers, applying for a loan can be the best solution to overcoming financial difficulties. In the US, the total consumer debt balance in the second quarter of this year was $16.11 trillion higher than last year. The figures show a growing number of Americans relying on loans to pay for bills and emergencies.

One crucial factor contributing to this growth is that applying for a personal loan comes with crucial advantages. We will look at these advantages and see how they encourage more consumers to apply for loans.

What is a personal loan?

Americans apply for personal loans for nearly any purpose. Common reasons include funding a large purchase, covering the cost of a significant expense, or paying overdue debts.

Today, you can apply for a personal loan from traditional finance institutions like banks and credit unions (CUs). Some online lenders offer same-day personal loans to those needing emergency funds.

Lenders provide the funds for personal loans in a lump sum. The loans have a set repayment period and will require borrowers to make recurring, monthly payments until they have repaid their debts in full.

Loan amounts vary depending on different factors and can range from around $1,000 to $50,000. Meanwhile, interest rates range from 6 to 36 percent, and repayment periods can last one to seven years.

If you want a personal loan, you must go through the application process and await approval. Depending on the lender, the wait may take a few hours or up to several days. After getting approval, you will receive money in your bank account. 

As you repay your debt, your lender will report your transactions to the credit bureaus. If you are concerned about your credit score, make sure to make payments on time.

There are various types of personal loans, including the following:

  • Unsecured and personal loans

Unsecured personal loans are the most logical option for borrowers with good credit and do not need any collateral for loan approval. The downside of this type of loan is that timely monthly repayments are required. Otherwise, your credit score will take a significant hit.

Rates are also generally higher with an unsecured loan since lenders take on more risk by not asking for collateral.

Meanwhile, secured personal loans require you to put up a particular asset as collateral. For instance, banks provide personal loans secured by property such as cars, boats, or homes. 

This loan carries low interest rates. However, the lender could seize your assets as payment if you do not pay your debts on time.

  • Co-signed and joint loans

If you cannot qualify for a loan on your own, you might need a co-signer to get approval. When choosing a co-signer, find someone with a good credit history willing to assume responsibility for the remaining balance if you cannot pay on time.

  • Debt consolidation loans

Borrowers choose these types of loans to pay outstanding debt balances quicker and save on interest. This loan has a streamlined repayment process, combining debts so borrowers only have to make a single monthly payment.

  • Fixed-rate loans

Fixed-rate loans have interest rates that do not change over the repayment period. With this type of loan, you can make the same monthly payment for the duration of the repayment term. Moreover, a part of your repayment goes toward your interest and principal.

5 Advantages of Personal Loans

According to The State Science & Technology Institute (SSTI), the number of adults in the US who struggled to make ends meet rose from last year’s 34.4 to 40 percent in 2023. Americans are applying for personal loans to overcome financial challenges. If you are still on the fence about taking out a loan, check out the advantages below and see how a personal loan can help you.

1. Flexible use

Personal loan lenders rarely make you decide how you want to use the borrowed money. This flexibility means the list of purposes for your loan can be nearly endless. Some institutions approve your application even if you are still undecided on how you want to use the cash.

Popular uses for personal loans include weddings, debt consolidation, college tuition, vacations, and home remodeling projects. Regardless of why you need money, you can get approval for a personal loan.

2. Lump sum of funds

Unlike credit cards and other types of lending, you can secure a lump sum of funds upfront when you apply for a personal loan. Moreover, you have the freedom to use the money however you want.

This advantage is crucial if you have to pay off high-interest credit cards, a contractor for home renovation, or expenses for a vacation.

3. Higher borrowing limit

Personal loans have a borrowing limit that ranges from $1,000 to $50,000. Some lenders even have a borrowing limit of up to $100,000. You must provide the lender with your employment history, credit score, and income to qualify for higher loan amounts.

4. Fast application process

The streamlined personal loan application process makes it an appealing option for many Americans in debt. Some companies can provide funding the same day you send your application, while others transfer loan funds within a few business days at most.

This advantage can be crucial if you need cash quickly for any reason. It can be helpful if you have unpaid bills you wish to pay off as soon as possible or want to move forward with a major purchase.

5. Builds credit score

When you apply for a personal loan, lenders and creditors may conduct a hard inquiry on your credit score. That said, if you use the funds responsibly and pay your debt on time, the loan can help build your credit score.

Apply for a Personal Loan and Start Building Your Credit Score

If you need money for an emergency and prefer the stability of a fixed repayment, you can apply for a personal loan. You can get the best loan rates and borrowing terms from lenders by improving your credit score and paying current debts. 

Another crucial thing to remember is to take your time to shop around and compare rates with multiple lenders. This way, you can get the money you need without worrying too much about the repayment process.