Personal Loans: All you need to know [Guide]
Life is unpredictable. One moment, everything is fine and the next moment, it isn’t. Urgent financial need can arise out of any situation, be it an emergency or a personal necessity. And when the going gets tough, you might have to look for other sources of funds. Personal loans can help you during such tough times. They can even be helpful when you just need access to some extra funds for your personal needs.
In fact, personal loans are a very versatile form of credit and you can use them for a variety of needs. Generally, they come with fixed interest rates and repayment schedules. So, you know your exact monthly payment schedule and when you’ll pay your debt in full.
This personal loan guide will answer all the questions you might have about personal loans. So, read to find out all you need to know before applying for a personal loan.
Let’s start with the basics!
TABLE OF CONTENTS
- What is a Personal Loan?
- How to qualify for a Personal Loan? - Qualifications & Documents Required
- How to apply for a Personal Loan?
- What are some of the common Uses for a Personal Loan?
- Final Words
What is a Personal Loan?
A personal loan is a form of unsecured debt that you have to pay back in monthly installments over a defined period of time. They can have fixed or variable interest rates and you can use them for different purposes (more on this later).
Unsecured debt implies that there’s no collateral attached to the loan. So, you don’t have to place any of your personal property as collateral with the lender to get a personal loan. There are many options available for you to get a personal loan from. At GConnectPro, you can get multiple options of lenders to choose from to get a personal loan on the right terms.
You may be able to qualify for a personal loan with low interest rate if your credit profile is good enough. This can help you save money compared to a credit card since credit cards usually have higher interest rates.The interest rate on your personal loan depends on many factors, like, your credit score, credit history, and debt-to-income ratio.
Advantages of Personal Loans
- Versatility: A personal loan is versatile and can be used for many purposes, like, home or car repairs, medical bills, a vacation, debt consolidation, and a lot more.
- No Collateral: Most personal loans are unsecured which makes them especially attractive to consumers who have nothing of value to use as collateral.
- Low Interest Rates: Personal loan rates are much lower than rates on credit cards. If you have good credit, you can get a personal loan at an interest rate of 5-6%.
- Multiple Lenders: You can borrow personal loans from a lot of sources, like banks and credit unions, or from online service providers, like GConnectPro.
- Fixed Payments: Since interest rates on most of the personal loans are fixed, your payment is the same every month. You don’t have to worry about variable payments.
- Quick Approval: Personal loans get quick approval.You can apply online, have an answer the next day, and get the funds released in the next few days!
Disadvantages of Personal Loans
- Interest Rates can rise: Interest rates on personal loans are low if you have good credit. But if your credit situation is not strong, then the interest rates can rise quickly and makes this an expensive option for getting funds.
- Origination Fees: Many personal loans come with an “origination fee” which covers the cost of processing the loan. It is either rolled into the loan or taken out of the amount disbursed to you. This can be between 1% to 6% of the borrowed amount.
- Prepayment Penalty: You might be charged prepayment penalties if you pay off your loan before the term of the loan is up. You must always check with the lender beforehand and get to know if there will be any prepayment penalty.
How to qualify for a Personal Loan? - Qualifications & Documents Required
Let’s go through a list of qualifications and documents that you’ll need to qualify for a personal loan.
- The U.S. Citizenship & valid Social Security number: Usually, lending institutions don’t lend to non-U.S. citizens at all. This is because they are considered to be too great of a risk.
- Be at least 18 years of age to be approved for a personal loan.
- Meet the lender’s credit requirements like FICO score and more. These vary from lender to lender.
- Valid Personal Identification like passport, driver’s license, social security card, or any other acceptable government-issued personal identification.
- Permanent Address and a proof of permanent address
- Having a verified source of regular income is also a requirement with many lenders. They may want to see your recent tax returns, monthly bank statements, and pay stubs to verify your income.
- You must request a loan for an approved purpose. You may be unable to use a personal loan to fund certain types of expenses, so check with your lender beforehand.
How to apply for a Personal Loan?
You can go through the following simple process yourself while applying for a Personal Loan from a platform like GConnectPro:
- Check your credit: Check your credit because the lender will do that too. Your credit score determines your eligibility and the terms you can get for your personal loan.
- Determine your financial needs: You must know how much you need to borrow and for what purpose.
- Research Lender: Look around for different lenders and the terms they are offering. GConnectPro can help you search from several lenders!
- Loan Application: Fill in the appropriate paperwork and submit to a hard credit check. GConnectPro helps you out in this step to ensure that there are no shortcomings.
- Documentation: Provide copies of documents such as proof of employment, income, verification of your identity, and other required documents.
- Loan Approval: Once the loan is approved, your funds could be deposited into your bank account as soon as within a couple of days.
What are some of the common Uses for a Personal Loan?
Are you struggling to pay back several types of debt? If yes, then a personal loan can help you streamline payments and pay less interest overall. So you can consolidate higher-interest debt, like credit cards or student loans using a personal loan.
Credit Card Refinance
Usually, personal loans have lower interest rates as compared to credit cards. So, you must take into account the interest rate of the loan, origination fee, and repayment terms to determine whether you’ll actually save money.
Your home might not have enough equity to qualify for a home equity loan or line of credit. In such a situation, a personal loan can help finance home improvements.But, it might come with a higher interest rate.
A personal loan might cost less than a credit card, in interest payment. So, you can use it to make some major personal purchases. But, before taking on new debt,think about whether you really need that purchase now or whether it would be beneficial to save up and pay cash.
Small Business Financing
If you’re starting a business but don’t have enough funds or a good credit score then it may be tough to qualify for a business loan. In such a situation, a personal loan can help get your business going. But, if your business goes under, you’ll still have to pay back the loan or risk damaging your credit.
You can use a personal loan for buying a car, but it might be easier to qualify for an auto loan. Moreover, since an auto loan uses the vehicle as collateral, you’ll pay less interest and fewer fees. But, if you’re looking for an auto loan, we,at GConnectPro, can help you out with that as well!
If you take a personal loan to pay for medical expenses then it can help keep medical bills from going to a collection agency. But, first, see you must check if your medical provider provides payment help.They might work with you to pay off your balance and not charge interest.
For all your major life expenditures, there are a variety of personal loans and other financing options to choose from. Make sure that you do your research, compare terms of different lenders, and stay updated about how a loan can affect your credit.
If you’re not sure whether you’re making the right decision, then you can connect with our financial advisers at GConnectPro and they’ll help you out!
Got any questions? You can let us know in the comments below and we’ll get back to you!