What To Know Before Taking Out A Personal Loan
Personal loans are a versatile financial tool. Unlike home or auto loans, you can use personal loans to pay for a myriad of expenses. Often personal loans are used to consolidate high-interest debt, but they can also be used to pay off medical debt, cover home renovations, or pay for other expenses. While personal loans are a fantastic way to pay for many kinds of expenses, here's what to know before taking out this type of loan.
They Are General Purpose Loans
You are probably already familiar with installment loans, like mortgages and auto loans. With an installment loan, you pay your loan off over a set amount of time, and your monthly payments are always the same. Installment loans provide stability and make it easier to budget. Unlike other installment loans, personal loans are general-purpose loans, meaning you can use them for anything. Whether it's for unexpected expenses or to pay for a wedding, you don't have to have a specific reason to take out a personal loan.
There Are Limits To What You Can Borrow
When it comes to personal loans, your credit score and financial history will play roles in how much you can borrow. However, those factors aren't the only limits to how much you can borrow with a personal loan. Most lenders have a ceiling regarding how much they will lend out for a personal loan. Many lenders cap personal loans to $50,000. Most lenders put a cap on personal loans because they are unsecured, meaning there is no collateral. This also makes personal loans harder to obtain.
Interest Rates Vary
Another thing to know is that interest rates on personal loans vary depending on your financial history and the lender you select. Personal loan interest rates typically range from 3 to 36 percent, with the average interest rate hovering at just over 12 percent. Other fees, like loan origination fees, may also apply when you take out a personal loan. So if you are consolidating debt by using a personal loan, make sure you are paying less for your personal loan than you are for your debt.
Before you take out a personal loan, consider a few things. First, personal loans are general-purpose loans that can be used for any expense. Second, there are limits to how much you can borrow with a personal loan so ask your lender what their cap is. Finally, interest rates and fees will vary for personal loans.
For more information on personal loans, contact a company like Ardmore Finance.
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