Personal finance can be confusing. And if you need a loan, you may not know what you don’t know. So what should you know about personal loans before you apply? Maybe you need funds relatively quickly and need to know how long it takes to get approved for a personal loan? How high or low interest rates might be? Do you need collateral for a personal loan? How about a perfect credit score?
To put your mind at ease about these kinds of questions, we’ve broken down 10 key things you need to know about personal loans before you apply.
- Online lenders provide practical options for acquiring a personal loan.
With the progress in cyber security and Internet banking technology, online lenders have become reliable sources for loans, and may have more favorable rates. While physical bank branches are still in the business of generating loans, they’re no longer the only option.
- Not every personal loan offer is the same.
The personal loan industry is expanding, and that’s both good and bad for borrowers. It’s good because borrowers have more options to choose the right lender for their financial situation. It’s bad because more unreliable sources for loans can pop up. Do your research, and make sure you’re working with a reputable lender like Discover Personal Loans.
When comparing lenders, consider all loan factors in your loan offers. Pay close attention to whether a lender charges origination fees or closing costs, for example, or if there are pre-payment penalties or not. And be sure to look at the lenders’ reputations.
- You don’t need a perfect credit score to get a personal loan.
People with a wide range of credit scores secure personal loans every day. A good credit score, however, could get you a better rate because it can be an indication of your ability to pay back the loan.
- You don’t need collateral to apply for, or receive, a personal loan.
Personal loans are primarily unsecured loans, which means they don’t require you to put up collateral, such as your home or automobile.
- Personal loans come with comparably low interest rates.
Many potential borrowers incorrectly assume that personal loans come with high interest rates. The truth is personal loans can have relatively low interest rates. Discover Personal Loans offers APRs as low as 5.99% up to 24.99% APR, based on creditworthiness at time of application. Our lowest rates are available to consumers with the best credit. Many factors are used to determine rates, such as credit history, application information, and the term of the loan.
- Personal loans don’t always come with expensive fees.
You don’t always have to pay origination fees or closing costs for a personal loan. In fact, Discover Personal Loans never charges origination fees or closing costs, while other lenders do. With a personal loan from Discover, as long as you pay on time there are no additional fees.
- The approval process for personal loans can be quick.
It’s a good idea to gather all of the required information before beginning your personal loan application. Once you’ve submitted your application, the process often moves very quickly. You could get a decision and have the funds sent as early as the next business day after acceptance.
- You can pay off a personal loan in a fixed time period.
Personal loans are designed to help borrowers consolidate and pay off debts in a clear timeframe that works for your budget. Most can be paid off between 36 and 84 months, depending on your interest rate and the size of your monthly payment. For example, if you get approved for a $15,000 loan at 6.99% APR for a term of 72 months, you’ll pay just $256 per month. The fixed rates also make your monthly payments predictable, giving you a clear payoff date if you stick with those steady payments. Even better, some lenders offer no prepayment penalties, which means you can pay off the loan earlier than planned without any extra fees. Talk with your lender to find a repayment schedule that works best for you.
- You can get a personal loan even if you’ve already taken out a separate loan.
If you’ve already taken out a loan, this does not exclude you from applying for another. In fact, there are personal loans designed to help you pay off other loans. Using a personal loan for debt consolidation is a strategic way of combining debt into a more convenient and affordable solution.
- It’s wise to only borrow what you need.
It can be tempting to ask for more cash than you really need, but there is a cost to borrowing — it’s called interest. Stick to your plan. Get a personal loan with a fixed rate to help you accomplish your financial goals.
Want to learn more about your own personal loan options? Our personal loan payment calculator makes it easy to estimate monthly payments based on loan amount and credit score. Estimate My Payments