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Introduction

A personal loan can provide a convenient solution when you need to consolidate debt, cover your rent, or fund a project, especially if you’re unable to secure a low-interest credit card. Perhaps your credit card’s limit isn’t sufficient for the loan you require, or the bank is requesting collateral that you don’t have. In these situations, a personal loan can offer a straightforward and accessible option.  

Securing a loan was once a more challenging process, with limited options available. However, the rise of fintech companies has significantly increased the accessibility of personal loans. In fact, TransUnion, the company responsible for credit scoring, reported that in 2018, personal loans without collateral or security reached a staggering $138 billion, with Fintech companies accounting for 38% of that. This is a significant shift from just five years ago when fintech only accounted for 5%. 

While the availability of personal loans is a positive development, it also means that making an uninformed decision could lead to regret. However, there’s no need to panic. This blog post is here to help you navigate the personal loan landscape and make the right decision for your financial needs. 

Types of Personal Loan

Secured personal loans and unsecured personal loans are the two varieties of personal loans.  

  • Secured Personal Loans: A lender will only grant a secured personal loan in exchange for some form of collateral.  A Certificate of deposit, A saving, or An asset like a House, car or boat can also be taken as collateral to offset the loan when the borrower defaults. Most financial institutions prefer this because it guarantees they can get their cash. 
  • Unsecured personal loan: An unsecured personal loan is one in which the lender does not request any security to guarantee that the borrower will repay the loan. This often differs from the banks’ preferred option because it places much risk on their path. However, banks, online lenders, and credit unions also offer personal loans to borrowers who meet specific lender requirements. Unlike secured loans, unsecured loans come with a higher percentage of interest. 
Personal Loan _ Dont do this!!!

Can I use a personal loan for anything?

Typically, a personal loan can be used for anything; at least, this is a general fact. However, some lenders will do some questioning before handing out one and will only give out a loan if they think the borrower can pay it back.  

What is the average interest rate for personal loans?

According to Bankrate, the average interest on a personal loan as of 2023 is about 11.16%. A borrower with a great credit score and a high-paying job or one with collateral to guarantee their ability to pay can get a loan with a better interest rate. 

How long can it take me to repay personal loans?

Upon approval of a personal loan, one lump sum will be deposited directly into your bank account. Your loan repayment schedule and interest rate are likely to be fixed. Every lending institution sets repayment terms, ranging from one to ten years. 

Online lending companies like SoFi provide borrowers with access to funds for three to seven years, and a company like Marcus, owned by  Goldman Sachs, gives loan periods that can last for three to six years.

Advantages and disadvantages of a personal loan 

Advantages

  • A single large payment is given at once: This allows the borrower to make a beneficial use of the money acquired. To pay a debt in full, make a bulk purchase or execute a personal project.
  • Fast approval and payment times: Personal loans usually have speedier approval and payment duration. Hence, they are effective in emergencies. If you need cash for an urgent development, then a personal loan is a good option. 
  • It is possible to get an unsecured loan. If you plan to get an unsecured loan to get free cash and then get away without paying, you can be certain that you will be facing some financial and credit consequences. However, with an unsecured loan, you do not have to worry about losing an asset because of failure to repay at the agreed-upon time of repayment. 

Disadvantages 

  • Another form of debt: The underlying problem still needs to be solved, even with the juicy offer of a personal loan. There are better long-term solutions for a financial crisis than getting a personal loan. Obtaining a loan to offset another loan might just be an effort with no result.
  • Potential damage to personal image: In the case of an unsecured loan, the lending institution will have no other option but to take drastic measures to get the borrower’s attention if he defaults on his monthly payment. This might eventually lead to damaging the image and the credit of the borrower. 
  • It involves many more processes than payday loans: A person getting a personal loan gets a bulk amount of money compared to other loans like a payday loan. Hence, a few paperwork and background checks, as well as collateral, are needed in the case of a secured loan. 
  • Additional monthly expense: Getting a personal loan to be paid monthly for an extended period is a way of increasing your monthly payments. Many people need to consider that their monthly income is not enough, and that is why they are borrowing. Getting a loan just means that the inadequate monthly income will now be further strained.

Online banks offering personal loans

  • SoFi – Best online personal loan option
  • Avant– Operates a flexible, secured and unsecured personal loan
  • Upgrade – Offers to borrowers with poor credit 
  • Universal Credit – Flexible loan platform
  • Discover – Loan repaid in 30 days will not attract interest(T&C applies)