If you’re in need of some extra cash to cover an unexpected bill or to fund the remodel of your kitchen, personal loans might be just what you need to pay for whatever life throws your way. It’s important to know what you need the money for so that you can choose the type of personal loan that is best for you based on your current financial situation.
This guide is going to cover what a personal loan is, answer the question, “How do personal loans work?” and let you know what you should look for when seeking out these types of loans.
Curious how to get a personal loan? Here’s a start: MoneyLion can help you find and compare personal loan offers up to $100,000.
What are personal loans?
Personal loans are a type of installment loan. This means you’ll borrow a fixed amount of money from a bank, a credit union, or an online lender. Then, you’ll pay back that loan in the form of monthly payments, called installments, over a period of time, which typically lasts anywhere from one to seven years. You’ll be paying back the amount of the loan along with the interest that you accrue over the life of the loan.
Once you pay back the loan and interest in full, your account will be closed. If you need more money beyond that loan amount, you’ll have to apply for a new loan. Personal loans can be used for just about anything, whereas other types of loans, like auto loans or mortgage loans, can only be put towards certain purchases.
Personal loans are considered unsecured loans, meaning they aren’t backed by collateral like an auto loan or a home loan. In some cases, lenders will offer secured loans, which are backed by collateral, like a savings account. If you’re unable to make your payments, your lender will often have the right to claim your assets as a form of payment.
How do you qualify for a personal loan?
While every lender is different, most lenders will base your loan qualification on three things, including your credit score, your payment history, and your income. Your credit score is one of the most important factors when it comes to qualifying for a personal loan.
Lenders will decide how creditworthy you are based on your credit score. A lower credit score indicates that you might be a risky borrower. Lenders want to protect themselves from risk, so you’ll often be looking at much higher interest rates with a low credit score.
For the best interest rates, you’ll want to have a credit score of 640 or higher to avoid paying a ridiculous amount of interest over the life of your loan. Your payment history will often carry the most weight when it comes to determining your credit score as well.
This is because lenders want some degree of reassurance so that they can trust you to pay back the amount you borrow from them. A missed payment can stay on your credit report for up to seven years. But with a solid track record of on-time payments, you will increase your odds of getting approved.
Finally, lenders will ask you to prove your income to be sure that you have a steady stream of money coming in, which you can then put towards your loan payments. You’ll also be asked how much you want to borrow and how long you want to borrow for, but keep in mind that a shorter personal loan term means you’ll have a higher monthly payment.
According to data from Experian, most people pay an average interest rate of 9.41% on their personal loans. Depending on your credit score, your financial history, and the lender you borrow from, personal loan interest rates can range from 6% to 36% on average.
If you’re worried about qualifying for a personal loan based on your credit score and financial history, know that there are options out there. Even if you’re just looking for a simple, fast, and affordable personal loan option, you can apply for a Credit Builder loan from MoneyLion! You’ll be able to avoid the long application process associated with other lenders, and there are no hard credit checks.
How are personal loans used?
Since a personal loan doesn’t have a specified purpose tied into it, like student loans or auto loans do, you can use it for just about anything. Personal loan amounts can range from $1,500 to $100,000 on average, which gives you a lot of options in terms of how you can spend the money from a personal loan. Here are some of the ways you can utilize personal loans!
Afford your medical bills
You can use personal loans to cover medical care and dental costs, as well as other healthcare-related expenses, like emergency procedures, high deductibles, or costly out-of-network charges.
Repair your vehicle
Many drivers aren’t financially prepared to cover unexpected and costly vehicle repairs when they arise. If you need an auto repair that isn’t covered by your warranty or your insurance, and you don’t have the cash in the bank, a personal loan can help you pay for the necessary repairs and get you back on the road in no time at all.
Buy appliances
If you want a new appliance because your current appliances are on their last legs, you can use a personal loan to pay for new appliances, like a dishwasher or a washing machine. MoneyLion makes paying for your appliances even easier. When you’re invited to MoneyLion Overtime, you can spread your purchase out by making four equal installment payments over time. You’ll end up paying interest, but there are no hidden fees. Overtime is available for up to $600 in eligible purchases.
Consolidate debt
Do you have unmanageable amounts of debt? If so, you can use a personal loan to consolidate your unsecured debts into one monthly payment with a potentially lower interest rate. Using a personal loan to pay off debt can help save you money over time and make managing your debt much easier.
Pay off credit cards
Similar to using a personal loan to consolidate your debt, you can use a personal loan to pay off your credit cards as well. The average interest rate on a personal loan is 9.41% while the average interest rate is 15.91% for credit cards. That’s a major difference! If you’re deep in credit card debt, you can save money in interest by paying off your debt with a personal loan.
Fund your wedding
For many couples, their wedding is the largest and most expensive party they will ever throw. According to a survey done by The Knot, the cost of a wedding can range anywhere from $19,000 to $53,000!
A number like that can leave you stressed when it’s staring you in the face because it can be hard to figure out how to pay for your big day when it’s so expensive. But a personal loan can make it possible for you to say “I do!” without having to save for years ahead of time.
Remodel your home
Feel like it’s time to make your dream kitchen a reality? If those modern and marble countertops are calling your name, a personal loan can help you fund your home improvement projects. By updating your home, you’ll increase your home’s value over time, all while adding a personal touch to your property. Think of it as a wise investment!
Pay for unexpected emergencies
Sometimes, life throws curveballs and you might not always have the funds you need to pay for those unexpected surprises. You might need to pay for a funeral, a medical emergency, or even a new air conditioning unit without any warning. Thankfully, personal loans can help you pay for life’s unexpected moments without stressing you out.
Adopt a child
Choosing to adopt a child is a special and important decision. However, adopting a child can be much more expensive than many new parents realize. From legal assistance and travel fees to all of the other expenses that are involved, a personal loan can help you cover the expenses related to adopting a child, including the costs of out-of-state travel to pick up the new addition to your family!
Go on vacation
While choosing to pay for a lavish vacation with the help of a personal loan might not be the best choice, it can be a great option for people looking to enjoy a weekend getaway. Or maybe you have some money saved up to put towards a more expensive vacation but you find that you are a little short on funds. A personal loan can provide those extra funds that you need to take a trip and relax for a bit.
Give your pets an amazing life
Something a lot of pet owners don’t plan for is the likelihood of an unexpected veterinary bill. Even if your pet is in good health or far from being of senior age, unexpected illnesses and injuries can occur. If you find yourself in a pinch and need cash to care for your pet, a personal loan can help you cover the costs.
Move to a new home
If you’re making a big move to a new state or you have a lot of furniture that you need professionals to relocate to your new home, the expenses associated with moving can get very pricey really quickly. If you require the help of movers to get you and your belongings to your new place all in one piece, a personal loan can help you fund your move.
What to look for in a personal loan
Unfortunately, not all banks offer great personal loans. Save yourself time by making sure personal loans offer these key characteristics before you agree to a personal loan from any bank or credit union.
Low APR
The APR rate of a personal loan is a major factor when it comes to choosing a personal loan. When you obtain a loan with a high APR, it can be even harder for you to pay back the original amount of money that you borrowed with the personal loan.
Some banks will charge up to 36% APRs per year, which will not only put you in a tough financial spot, but you’ll also end up paying significantly more in the end than you originally borrowed. And if you don’t have a good credit score, your interest rate can be even higher.
Instead of risking high-interest rates, consider taking out a Credit Builder loan from MoneyLion. You can take out a Credit Builder loan up to $1,000 with a low APR, all without having to agree to a hard credit check. To show you just how important a low APR is, take a look at this example.
Let’s say you need to borrow $2,000 and you have two APR options. There’s one personal loan with a 10% APR and another personal loan with a 15% APR. Both personal loans will need to be paid back within two years.
If you choose the first loan and pay back your loan in installments, you’ll pay $92.29 each month for a grand total of $2,214.96 in the long run. However, if you choose the second lender, you’ll end up paying $2,327.28 in the long run, which is over $100 more for the same loan.
Personal loan limits
Personal loan providers usually have pretty strict limits on how much you can get in a loan. The maximum personal loan amount available is $100,000 and that’s strictly for the most qualified applicants. Only a few major lenders will even entertain the idea of a personal loan in the amount of $100,000 because personal loans don’t require collateral.
Make sure you know how much money you need before you start searching for a personal loan. Also, ask the lender you choose if they offer personal loans in the amount that you need.
In-person vs online loans
Don’t waste time sitting at the bank or waiting in line at the credit union. Make the most of your time by looking for a lender that services loans online. You’ll get your money much faster and it’s a far more convenient experience.
Additional fees
Some banks will lure you in with a low APR while also charging you additional yet hidden fees. Some common service charges that you might see include origination fees, underwriting fees, credit check fees, and repayment fees. Look for lenders who offer low fees, if any at all, and seek out limited charges to save more money. Like the Credit Builder loan from MoneyLion, make sure there are no hidden fees so that you’ll never have to worry about paying extra in addition to the APR associated with your personal loan.
Credit checks
Look for a lender that doesn’t require hard credit checks, especially if you already have a low credit score. Hard credit checks can lower your credit score, even more, so be wary of hard credit pulls and avoid them as best as possible.
How to get a Credit Builder loan from MoneyLion
Get the personal loan you need today with a MoneyLion Credit Builder Plus membership. You can get a low-interest personal loan in seconds! Just follow these quick, easy steps to get started with MoneyLion today.
1. Download the app
Start by downloading the MoneyLion app on your smartphone or tablet. Enter your phone number, input the verification code sent to you via text message, and follow the in-app instructions to open a free account with MoneyLion.
2. Become a MoneyLion member
To get a Credit Builder personal loan from MoneyLion, you’ll need to sign up as a member of the Credit Builder Plus program. Applying is easy! It only takes a few minutes, and you can sign up from within the app. You can also utilize the Loans Marketplace in the Loans tab to apply for a personal loan with MoneyLion.
3. Enter your personal information
You’ll need to provide some personal information in order to create your account. You’ll be asked to enter your name and address, as well as upload a valid form of photo identification. You’ll also need to verify your income by linking your primary checking account. Once you link your account, MoneyLion will scan your finances to see if you qualify. In order to qualify, you’ll need a checking or savings account that shows proof of income. Qualified income can include paychecks, direct deposits, benefits checks, alimony, child support, and unemployment.
3. Get up to $1,000
Once you’ve joined MoneyLion’s Credit Builder Plus program, you can immediately submit a loan request for up to $1,000 through the app. Upon approval, you’ll see a portion of your funds deposited into your account on the same day!
MoneyLion makes it easy to get a personal loan quickly
Personal loans are a type of credit, and if they are not used properly, they can leave you in an even worse financial situation than you could have imagined. Make sure you ask yourself if you really need the money before you jump into the process of applying for a personal loan.
Always make sure you have the means to pay off the personal loan on time before you take one out, too. If a personal loan is what you need in order to reach your financial goals, do your homework and seek out a loan that offers a low APR.
With a Credit Builder loan from MoneyLion, you can rest assured that you’re getting a low APR on your personal loan. Plus, you’ll receive the added benefits of building your credit score and avoiding hard credit checks, all while dodging additional fees. Let MoneyLion take the stress out of your next personal loan!
