Whether you are short on cash and need to get your car repaired to get to work, or you want to finally renovate an outdated bathroom, getting a personal loan can be a quick way to get your hands on cash. Although, you shouldn’t go into it without understanding all aspects of what a Personal Loan entails.
Top reasons people get personal loans
The motivations behind why someone would apply for a Personal Loan are as vast as the fish in the sea, but there are really only a handful of reasons when you look a little closer. The top reason is Debt Consolidation – People that have accumulated credit card debt on multiple cards with varying interest rates will often look to pay off all or most of those credit card balances with a single, fixed rate, personal loan. After Debt Consolidation or Credit Card debt consolidation is a home renovation project, like a new kitchen or a deck. Beyond these two reasons are large purchases like a boat or to pay for a wedding.
How much money can you get through a personal loan?
Many lenders don’t offer loans below $10,000 and will usually go up to $40,000 or $50,000.
How do you qualify for a personal loan?
In order to qualify for a personal loan you will need to have a solid income history with a minimum credit score of 620. You will also need to have a debt-to-income ratio of no more than 43%. Meaning, if your monthly debt payments equal $3,000 and your gross monthly income is $7,000, your DTI ratio is around 43 percent (3,000/7,000=0.428).
How long does it take to get a personal loan?
The time it takes from when you apply for a personal to when you get the money transferred to your account could be a few days to a few weeks. It depends on the lender and how easily you go through underwriting. If you have high income with an excellent credit score it will likely go faster.
Personal Loan Terms and Rates
A Personal Loan is a fixed rate, unsecured, loan you would receive from a bank or other lending institution. Unsecured means it’s not tied to an asset as collateral, like a car loan or home mortgage. The loan term, or length of a personal loan, is usually 12 to 60 months and the longer the term of the loan the lower the interest rate will be, but the pay-off period is longer.
Some lenders will give you a lower rate (or rate discount) if you have a certain amount of retirement assets or have someone cosign on the loan with you. A lower interest rate will save you money each month and over the life of the loan. Also be aware of the origination fees that lenders charge as part of the loan agreement.