Most Frequently Asked Questions About Personal Loans

It’s always wise to do your research before applying for a personal loan to understand what it is and how it works. So, we’re giving you the answers to some of the most frequently asked questions about personal loans to keep you in the know. 

What is a Personal Loan?

A personal loan is an amount of money you borrow for personal, family, or household purposes and pay back in installments. You can use a personal loan to make repairs on your vehicle, pay off medical bills, take a vacation, or consolidate your debt. The choice is yours. If you make your payments on time each month, a personal loan can be a good way to improve your credit score.

How Does a Personal Loan Work?

Once you get approved for your loan, you’ll typically receive it via direct deposit the same day or within a few business days. The repayment process usually begins thirty days after you receive your loan. You’ll pay back the loan in scheduled monthly installments and how much you pay can vary depending on the interest rate, term, and amount borrowed. 

Variable-rate loan: With a variable rate loan, your interest rate can fluctuate, which may cause your monthly payment amount to differ. 

Fixed-rate loan: If you have a fixed-rate loan, your monthly payment will be the same each time, so there won’t be any surprises. 

Unlike a revolving credit line like a credit card or a home equity line of credit, your account is closed once you pay off your loan. If you want to borrow more cash, you’ll have to apply for a new loan. 

How Do I Qualify for a Personal Loan?

To qualify for a personal loan, you’ll want to do some research to find out what the lender requires for new borrowers. Often, lenders want to know that they can trust you to pay them back. So, they’ll review your credit score, credit history, and income to get an idea of the type of borrower you are. 

Credit score

Your credit score is the number that rates your credit risk and lets lenders know what your creditworthiness is. The higher your credit score is, the better chance you can qualify for a loan. 

Credit history

Your credit history is the detailed record of your borrowings and payments contained in your credit report. Many lenders review your credit history—not just your credit score—when deciding if they will grant you a loan. 

Income

Your credit is not the only factor that comes into play when qualifying for a loan. Proof of your income helps lenders figure out how much you can borrow and lets them know you’re capable of paying back the loan. 

Can People with Challenged Credit Get a Personal Loan?

While approval is never guaranteed, it’s possible to get a personal loan with a lower credit rating, but you’ll have fewer choices on which loans you qualify for and how much you can borrow. You’ll also want to keep in mind that if you’re eligible for a loan, your interest rate will be higher. 

A secured loan is another option if you have challenged credit. You’ll provide collateral like real estate or your vehicle. If you fall behind on your payments, the lender has the right to keep what you offered as collateral. 

A personal loan is a great option for financing some of your larger purchases, so you don’t break the bank. Consider how much you need and what you can afford to ensure you get the loan that fits your needs.  

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