Life Loans – What You Need To Know About Personal Loans

As we age, taking on debt is more serious than not paying your parents back that couple of hundred dollars needed to float you through the end of the term at university. The personal loan becomes more than borrowing an extra fifty dollars from your sister to buy those new jeans. While you can skip out on your family, skipping out on a personal loan can have serious consequences for your financial health.

Because debt is so commonplace, more specifically personal loans, a person can get pretty much anything financed with the right income and credit score. Furthermore, it can be a good way to establish credit history, so when you do have to make major purchases down the line you have established your creditworthiness. Finally, online tools have created pathways for consumers to learn about the many different types of personal loans and how to leverage debt to your advantage.

Let’s take a closer look at what you should know before taking out a personal loan.

What Exactly Is A Personal Loan?

Personal loans can be used for just about any purpose.  Repairs or renovations to a home, financing a trip, making major purchases, and any project or purchases that benefit the person applying for the loan. Most are unsecured loans that have very strict requirements. For example, a Latitude personal loan requires applicants have proof of employment and a good credit history, as well as other requirements. While typically most loans are more difficult to qualify for than your standard credit card, the loan program might vary depending on the financial institution.

What Are Common Features Of The Personal Loan?

The personal loan usually has a fixed interest rate determined during the application process. Loan amounts can run as little as a couple of hundred dollars to as much as $50,000. Because the rates are fixed, the payments are fixed as well and typically last anywhere between one and twelve years.

While most rates are fixed, there is a chance you will come across variable interest rate loans. The disadvantage of these types of loans is your payment fluctuates as the interest rates do, and while at first, the rate might be extremely low (and the payment), if the rate increases your payment might balloon as well. In any case, shopping around can help you determine whether a fixed or variable rate loan can help you.

How Do Personal Loans Affect Your Overall Credit?

The personal loan can affect your credit in a few ways. For one, every time you apply for a loan, the application is treated as though you have opened a line of credit, even if you are not approved for the loan. This is significant because the application is treated like an open line of credit and it is considered when calculating your debt-to-income ratio. If looking to make other major purchases, you want to avoid applying to too many financing companies because every application lowers the amount of money you can borrow.

Then, the personal loan can help you establish, or conversely destroy, your credit report. Payments that are made on time establish you as good credit risk, and alternatively, late payments, delinquent payments, and charge-offs (not paying at all) can wreak havoc on your score. Finally, every mark on your report, including any loans, stays on the report for at least seven years.

Financial Acuity And The Personal Loan

As already mentioned, the personal loan is more serious than a credit card. At the same time, though, it can be used to establish credit history. If looking to make improvements on a home, purchasing a car, or any other major project, the personal loan is one of the most common ways to secure finances.