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Personal Loans: A Buyer’s Guide

It’s no secret that personal loans are a great financial option for people who need cash to make important purchases. Whether you want to buy a car, go back to school, or start your own business, the right personal loan can be an amazing way of getting ahead in life. 

The best thing about these loans is that they don’t require collateral and provide quick access to funds. This article will explain how they work and what you should look out for when taking them out!

What is a personal loan?

A personal loan is a type of debt that allows you to borrow money from the bank or credit union for any purpose. As long as your lender agrees, you can use it to pay for anything—from school tuition and medical bills to buying a new car. 

You usually have between five and seven years (depending on the terms) in which to repay this amount back.

Personal loans are unsecured, meaning there’s no physical asset involved when borrowing them like with mortgages and auto loans. This means they tend not be very expensive compared with other forms of financing such as home equity loans or business lines of credit . 

For most consumers, interest rates will range anywhere from about six percent all the way up to 26%. A loan origination fee may also be involved, which is generally around one percent of the total borrowed amount.

Why would you consider taking out a personal loan?

It’s important to remember that while these loans can make life easier for many people, they also come with responsibility and increased costs. Personal loans are not free money—you have to pay them back! 

This means it’s vitally important that you know why you need this particular piece of financing before signing anything and how much it will cost in interest fees and monthly repayment. The idea here is always going to be borrowing as little as possible so your debt isn’t unmanageable later on. 

Here are some reasons consumers might want or need a personal loan:

  • Buy a house, car, or another big ticket item for which you don’t have the cash.
  • Pay off high-interest credit cards.
  • Go back to school and complete your degree so you can get ahead in life.  

What are some factors I should look at when taking out a personal loans?

Whether it’s deciding between an online lender or one associated with your local bank; choosing fixed vs. variable rates; or even picking between short term (two years) and long term (five/seven-year) repayment periods, there are many variables involved when borrowing money from any source— this is especially true with personal loans.

One of the most important things to consider is whether you’ll be able to afford your monthly payment after signing on for a specific term and amount. If you can’t keep up with payments, then this loan could end up being more trouble than it was worth in the first place! 

Luckily, some calculators make figuring all of these factors relatively straightforward—just remember not to rush into anything without doing due diligence beforehand.

Pros and cons of taking out a personal loans 

Pros

  • You are not required to have collateral to qualify
  • Repayments terms vary widely depending on the lender you choose but can be anywhere from 12 months up to seven years.

Cons

  • These loans tend to come with higher interest rates than other forms of financing.  
  • Interest is usually based on your credit score, which will determine how much you pay back overall. If you don’t make timely payments, it could negatively impact this rating and cause the price of borrowing more money later down the line. 

The personal loan market has grown tremendously over time as people become increasingly comfortable turning to these institutions for financial help when making big purchases or dealing with unexpected expenses.

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