What is a Personal Loan and How Does it Work?

A personal loan can significantly help your personal finances if used correctly. However, if you aren’t careful, getting a personal loan could ADD to the debt you already owe on your credit cards and make it that much harder for you to achieve financial success.

Put very simply, a personal loan is money that you take out from a lender which you’ll then repay in monthly installments over the course of 2 to 7 years. In other words, it is a type of credit that you can use but also must repay, just like mortgages, student loans, credit cards, or a home equity loan.

Typically, a personal loan will have a lower rate than other loans so they can be very useful for consolidating multiple sources of your debt into one easy monthly payment.

Alternatively, if you’re thinking of making a big purchase but don’t want to save up a lump sum and instead want to break the payment up into monthly installments, a personal loan could be a great way to do it.

Financial institutions like banks and credit unions are the most common place where you can get a personal loan.

Most personal loans are unsecured meaning that you don’t need to put anything down as collateral. The issue is that lenders may look at all of the factors and decide that you don’t qualify for a personal loan.

Despite all of the requirements and factors that your lender will check before giving you a loan, on your end, applying for a personal loan actually isn’t that complicated.

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