According to the Chamber of Commerce, personal loans are the fastest-growing type of consumer lending in the United States. Personal loans are typically unsecured and range anywhere from $100 to $100,000. The average is around $8,000. Borrowers often use personal loans to consolidate or pay off their credit cards or student loans. There are currently more than 20 million personal loans outstanding in the United States.
With the growing popularity of personal loans, you may wonder how you can get one. Perhaps you want to pay off your credit cards, or maybe you want to do some home remodeling. Whatever the reason, this guide will tell you five things you should know about personal loans and how personal loans work.
1. How personal loans work. Personal loans are installment loans. You borrow money and pay it back with interest. There will be monthly payments, usually for one to seven years. Depending on the terms of the loan, you may or may not be able to pay the loan off early without penalty.
2. Personal loans can be secured or unsecured. Personal loans are often unsecured, but in some cases, collateral may be required. You may be able to use your car or a recreational vehicle to secure a personal loan. You could also use a savings account or CD.
3. Your credit score matters. Lenders use your credit score to determine how risky it is to lend money to you. As a general rule, the higher your credit score, the better interest rate you will receive. You should wait until you have decided on a lender to apply for a personal loan rather than applying for loans from several lenders at once. If you apply with multiple lenders, you will have several hard inquiries on your credit report, and that causes your credit score to drop.
4. Fees to expect. In addition to the interest, which can range from 5% to 36%, depending on your credit, there may be fees associated with the loan. The most common fees are an origination fee, which is usually between 1% to 6% of the loan amount, and a prepayment penalty. A prepayment penalty is an extra fee you pay if you pay your loan off early.
5. Watch out for scammers. There are online “lenders” that are not lenders at all. Often, they will charge you hundreds of dollars in fees upfront and then disappear without giving you the loan that was promised. The best way to avoid scammers is to deal with brick-and-mortar lenders in your own area that you know is legitimate.
You can get a personal loan from a bank, credit union, online lender, or peer-to-peer lender. You can also get a personal loan from a loan center like Tio Rico. Contact Tio Rico today for more information about personal loans in Arizona.