Whether you’re looking to pay off your credit cards or fund your dream vacation, a personal loan can help you achieve your goals. Personal loans offer the flexibility to cover a range of expenses, from unexpected medical bills to debt consolidation.
When it comes to borrowing money, it’s important to make an informed decision. We’ve laid out the basics so you can better understand what it means to get a personal loan:
Simply put, a personal loan is an unsecured loan, meaning it does not require collateral. It gives you access to funds you can use for a variety of purposes, like consolidating debt, paying for unexpected expenses, remodeling your home, or taking that dream vacation.
Unlike a mortgage or student loan, which are designed for defined uses, you have the freedom to spend a personal loan on almost anything you want. (You can’t use a personal loan to pay for post-secondary education or to pay off a secured loan or, in some cases, to directly pay off a credit card from the same lender.)
Yes. Personal loans can be a great way to pay down credit card debt.
For one, a personal loan can make debt repayment easier and more convenient. Paying off credit cards directly can mean having to juggle multiple payments, which typically vary from month to month. If you’re only making the minimum payments, it can take a long time before you see real progress in reducing your balances. Instead, you can consolidate your debts into one personal loan with a set regular monthly payment. This lets you budget for your payments and see consistent progress in paying down your debt.
You may also save money on higher-rate debt with a personal loan. A credit card is a revolving debt, which means you can keep charging to the card account and adding to your outstanding balance. You could end up owing more and more, and there’s no limit to how much total interest you could ultimately pay.
A personal loan is an installment loan: you borrow the money once, and pay it off through a series of fixed payments. You’ll know upfront how much total interest you’ll pay and can circle the final payment date on your calendar. What’s more, you may be able to get a personal loan with a lower interest rate than your credit cards.
When you have a large expense, it can make sense to take out a loan rather than using your credit card or emptying your savings. A credit card is great for everyday purchases, but you might not want to use a higher-interest rate card on that once-in-a-lifetime cruise. Similarly, you might want to use a personal loan for your home remodeling so that you can leave your savings account available for longer-term goals.
A personal loan can also provide the funds you need to pay off outstanding debts. You can make a large, lump-sum payment to significantly reduce or eliminate your debts, rather than making minimum monthly payments that sometimes barely make a dent in what you owe. Many people use personal loans to pay the balance on uncovered medical procedures, reduce their credit card debt, or pay back taxes owed to the government.
A personal loan can be deposited directly into your account, and you can use those funds however you need them. So taking out a personal loan can not only help you reach your financial goals, it can give you flexibility to manage your debt smartly.
Choosing the right lender for your personal loan is important. After all, you’ll form a key financial relationship with them for the life of the loan, so you want a lender who’s easy to work with.
Here are some things to look for
• A good reputation. Good lenders should be transparent about the terms of their loans, and have a proven track record of happy customers.
• Strong customer service. Lenders with trained loan specialists can help you make informed decisions when taking out a personal loan, so you get the loan that’s right for you. And choosing a lender with a fast response time means you won’t be waiting weeks for your money.
• Transparent interest rates. A lender that offers fixed interest rates — locking in your rate for the life of the loan — ensures you’ll never be surprised by rate increases.
• Flexible payment options. Your needs are unique, and your personal loan should be customized for you. Look for a lender that lets you choose the size of the loan and how long you take to pay it off. Looking for a lower monthly payment? Pick a loan with a longer term. Or choose a shorter-term loan to save on interest.
• Low or no upfront fees. Some lenders charge loan origination fees, which can make your loan more costly. Look for lenders that offer personal loans with no origination fees so you can use more of the balance to meet your goals.
There are several factors that not only affect your chances of getting approved for a personal loan, they also determine the rate you’re offered. These include your credit history, employment history, income, and current debt levels. And while having great credit may help you qualify for lower rates, you don’t need perfect credit to secure a personal loan.
When you take out a personal loan, you agree to pay it back in a series of monthly payments for a fixed amount of time. The amount of your monthly payment depends on the size of the loan, your interest rate, and the personal loan repayment term — or how long you have to pay it off.
You’ll know upfront what your monthly payment will be and how many monthly payments you’ll need to make, so you can budget accordingly.
Applying for a personal loan is easy. Once you’ve decided on the right lender, they may ask you to verify your income and employment status, and they’ll review your credit history to determine your interest rate and the size of the loan you qualify for. If you’re approved and accept the loan, you’ll get your money.
How you receive your funds is up to you. If you’re consolidating debt, for example, Discover®Personal Loans can send the money directly to most of your creditors. Or you can receive funds in your bank account. If your application is approved, your funds can be sent as early as the next business day after acceptance.
Once you have your money, you’re free to start funding your goals, whether that’s booking a flight to your dream destination, putting down the deposit on a wedding venue, or something else entirely.
Ready to take the next step toward the financial life you want? Use our monthly loan calculator to estimate your monthly payment based on your loan amount and credit score, to learn how your dreams can fit into your budget.Estimate Monthly Personal Loan Payment