The 6 Best Things About Personal Loans

2 minutes

Personal loans — sometimes referred to as signature loans — are one of the fastest growing debt types in the U.S., and for good reason. We’ve narrowed down the benefits of personal loans to a list of their six best features, but were sure you’ll be able to identify additional benefits of your own as well:

1. Personal loans are unsecured.

You don’t need to own a home, or offer up other forms of collateral (like your car title) in order to get a loan. You will still need to qualify for the loan based on your income and credit profile though. Since these loans aren’t tied to your personal property, in the unlikely event that you can’t repay the loan and go into default, you don’t run the risk of foreclosure or repossession.

2. Loan amounts can range from $1,000 to $50,000. 

Whether you need to borrow a little for an unforeseen expense like a car repair or vet bill, or a lot to consolidate all of your other debts, personal loans offer you flexibility. These loans aren’t open-ended though, so you’ll need to borrow the entire amount you need in a single transaction.

3. Shorter repayment periods get you out of debt sooner.

With fully-amortized* repayment periods of 1 to 5 years or so, you’ll be able to pinpoint exactly when you’ll be out of debt. If you’re struggling with paying off credit card balances only to charge them back up again, having a close-ended account like a personal loan can help you to finally get free of your debts.

*This means your balance is paid down in equal installments over time until it’s paid off.

4. Personal loans aren’t revolving debt. 

Rather, personal loans are considered an installment debt. When reporting on your credit, they won’t show up the same way a maxed out credit card would. They also contribute to your account type mix, showing creditors that you can responsibly manage different types of debt. In fact, having an installment loan is a great way to build or re-build your credit because the monthly payments and interest rates are fixed and therefore lower risk.

5. One-time expenses won’t derail your finances.

For large, one-time expenses like paying for a wedding, or remodeling your kitchen you can finance the costs upfront with a personal loan, rather than wait until you can save up and pay for them in full. The finance charges you incur should factor into your decision, but they could be worth it under the right circumstances.

6. Interest rates on personal loans are very competitive.

In fact, compared with credit cards, personal loan interest rates are often quite a bit lower. The underwriting process is simpler than mortgages and home equity loans and lines of credit as well, so you can be approved in a matter of days. To compare personal loan offers and read company reviews from actual clients check out our personal loan comparison tool.

Most popular uses for personal loans

  • Pay off credit card debt
  • Improve credit scores and profiles
  • Finance home improvement projects
  • Pay for a wedding, vacation, or other event
  • Create an emergency fund
  • Launch a side-business or passion project

References:

Experian Blog

The Huffington Post