Is a Personal Loan Right for Me?
Taking control is important when it comes to money matters, and personal loans can be a smart solution for taking the financial bull by the horns, you might say, in a variety of financial situations. While many people use them to consolidate debt, you can also use them for home improvement projects, weddings, vacations, medical expenses and more.
If your goal is to make progress on managing debt, first you need to size it up. Start by determining the amount that you need and how much you can afford to borrow and confidently pay back.
Use our debt consolidation calculator to add up your debts that you’d like to pay off. See if you could potentially save money by consolidating the debt and at what estimated interest rate. You can also use our personal loan calculator to estimate monthly payments.
When consolidating credit cards or refinancing an existing loan, you want to be sure that the math adds up in your favor. If you can lock in a lower interest rate, have only one single monthly payment and perhaps pay off debt faster, then that sounds like a pretty good plan.
We understand debt consolidation can seem difficult, which is why a choice of loan terms can make it seem more manageable. The loan term defines how long you can take to pay back the loan. This allows you to pay at a pace that’s comfortable for you, while knowing your target payoff date from the start.
If your loan would finance a major expense, like new kitchen appliances, new windows or an engagement ring, consider how much more a personal loan payment will factor into your monthly expenses.
What are the Most Important Factors to Consider When Choosing a Personal Loan?
According to a national survey1 of 2,000 adult consumers in 2016, the most important factors when choosing a personal loan are overwhelmingly the trustworthiness of the lender and interest rates. In fact, 78 percent of adults indicated that those two factors—trustworthiness and interest rates—were the top reasons for selecting a personal loan provider. We think it’s also important to consider Annual Percentage Rates (APR) and any fees, such as origination fees. Hidden loan fees can increase your APR.
Trustworthiness of the Lender
People look for personal loan lenders they can trust. While a competitive interest rate typically factors into a borrower’s decision, the majority of survey respondents would evaluate potential lenders on more than just proposed rates. They want a lender who can guide them through the application process, alleviate stress by providing clarity during the origination of the loan, and then be available throughout the life of the loan to answer questions. Don’t forget, when you get a personal loan, you are entering into a multi-year relationship from start to payoff with a lender.
Getting a personal loan is a decision that can affect your financial future, so it’s important to fully understand the terms of your loan. This is another possible reason why the trustworthiness of the lender was so important to survey respondents. Consumers are looking for full transparency and clarity from their lender when considering their loan provider.
The fine print of some lenders may include hundreds or even thousands of extra dollars in cost due to variable interest rates or origination costs depending on the size of the loan. A lender may charge fees such as closing costs or origination fees. For instance, if a lender has a 6% origination fee and the loan is for $10,000, then the borrower would pay $600 just for originating the $10,000 loan.
If you compare the cost of having multiple higher-interest bills to one loan with a lower interest rate, the math makes more sense. If the combined interest rate on your higher-interest debt is higher than a personal loan, you could save hundreds, possibly thousands, on interest by consolidating it into a lower interest rate loan.
Fixed interest rates are important as well because with a fixed interest rate, your set monthly payment won’t change.
Customers should consider the total APR, not just interest rate. Simply put, the annual percentage rate approximates what you’ll pay in a year to borrow money, expressed as a percentage. It encompasses the interest rate plus any fees that will be assessed on the balance of your loan.
The APR is often higher than your interest rate because some lenders add origination or other fees to your loan.
Fixed rates at Discover range from 6.99% to 24.99% APR depending on the creditworthiness at the time of your application. There are no origination fees or closing costs to increase your APR, so no surprises.
It’s a good idea for loan seekers to check if their lender charges any origination fees and know the exact percentage charged.
An origination fee is exactly what it sounds like: a fee charged by a lender upon entering into a loan agreement. It’s a fee just for taking out a loan. It’s important to learn if a lender charges any origination fees and know the exact percentage charged. Discover Personal Loans doesn’t charge an origination fee. Plus, there are no fees as long as you pay on time.
Who Tends to Take Out Personal Loans and Why?
When trying to decide whether a taking out a personal loan is the right decision to make, it can be useful to review who tends to take out personal loans.
So, who uses personal loans? Let’s take a look.
Responsible Debt Managers
One of the most common uses for personal loans is debt consolidation. A key benefit of debt consolidation allows you to combine several separate debts into a single loan with one monthly payment—usually at a lower interest rate, which would save you money. It’s a convenient, responsible and effective strategy for people looking to better their personal financial situation and eliminate higher-interest debt. After all, you can have a good credit score and still have debt.
People Budgeting for Major Home Repairs or Minor Remodels
A personal loan can be used to pay for home repairs like fixing a leaky roof, replacing drafty windows or for smaller home remodel projects. A personal loan is unsecured, so you don’t have to use your home as collateral to take out the loan. This can be very appealing especially if the repair is unexpected and you need funds fast. Since the loan is unsecured, the application and funds disbursement can be relatively quick and easy compared to secured loans.
Couples Getting Married
For some couples, the big day deserves the full treatment: the dream venue, an extensive guest list and an unforgettable honeymoon. In this case, a personal loan could be the ideal solution if you prefer to know exactly how much you’ll be paying per month and exactly when you’ll pay off the loan, provided you choose to have a fixed rate and term.
Small business owners use personal loans for a variety of reasons; cash flow as they start to grow their operations, investing in new equipment or covering unexpected operating expenses While there are loans available specifically for businesses, personal loans may offer more flexible options for smaller expenses.
Those consumed with wanderlust may use personal loans to take care of travel expenses during their trip. Whether it’s used for air travel, lodging or entertainment, a personal loan can transform a vacation into a once-in-a-lifetime experience.
This can be particularly helpful for those anticipating a bonus check, or other source of additional income, but want to take advantage of an earlier opportunity to travel.
People on the Move
You never know where the next opportunity in life will pop up. Getting a new job in a different location can be expensive, especially if there’s lag-time before starting your new job. Personal loans can be a great financial solution for these exciting, but stressful, times to help cover moving expenses, which can be costly if your company doesn’t offer a relocation stipend.
Along with finding out what types of people tend to take out personal loans, it may also be helpful to familiarize yourself with the amount of people who have opted to get personal loans.
How Do People Use Personal Loans?
According to recent data from the Bureau of Labor Statistics, Americans spend most of their money on three things:
Other items high on the list include health care, insurance, apparel and services. One of many benefits of a personal loan is that you can use the money to help address your highest priorities. Whether you are covering crucial living or medical costs, taking the trip of a lifetime or starting a business, a personal loan could be of great help.
Preview Your Rate on a Discover Personal Loan
Do you have a major expense or multiple bills you’d like to get under one monthly payment? Preview your rate with a Discover personal loan up to $35,000 today.