Personal loans provide American consumers with an opportunity to better their lives. Whether they’re paying off debts, making home improvements, or covering medical expenses, these loans can serve as excellent sources of temporary financial relief.
Of course, as with other loan types, personal loans must be repaid. This means individuals should be well informed on the cost of repayment before securing one.
The Basics of Personal Loans
Banks and credit unions are the most common places with which to secure personal loans. Since these financial institutions are taking a chance by issuing a loan, they require borrowers to agree to loan terms that include repaying under an annual percentage rate (APR).
The APR is the rate of interest used to determine how much, in addition to the principal amount (the loan amount borrowed) must be repaid. Typically, borrowers with higher credit scores secure the lowest APRs. In some cases, if a borrower’s credit score is too low, the loan could be declined.
Personal loans are usually offered over a specific period of time known as a term. Loans vary in terms, but can range from six months to multiple years and can greatly impact monthly payments and total interest paid.
Also, as you choose whether you’d like to apply for a personal loan, consider that with financial institutions taking a risk in lending funds, they usually require that their borrowers have sufficient verifiable income as proof that repayment is probable.
To learn more about the process and cost associated with borrowing personal loans, explore GOBankingRates today.