What is a Personal Loan?
A personal loan is a loan that can be used for a variety of things. A personal loan might be secured, or unsecured. In some cases, a personal loan could help improve your credit score.
A secured personal loan requires some collateral. In other words, when a person takes a secured personal loan, they have to give the lender something of value. It could be a car, boat, or home. If the person fails to pay back the secured personal loan, the lender can take the collateral as payment.
Unsecured personal loans are more popular than secured personal loans. An unsecured personal loan does not require collateral. It can be used on a variety of things such as a wedding, medical bills, home improvements, refinancing an existing loan, or to consolidate credit card debt. A personal loan is best used on long-term needs. Don't take a personal loan to fund your vacation.
How much will the interest rate be on your personal loan? It depends. Lenders will make their decisions on that based on the person's credit score. The higher a person's credit score is – the lower the interest rate on their personal loan will be. If your credit score is low, you will likely end up with a higher interest rate on your personal loan.
Before you take a personal loan, it is a good idea to find out what your credit score is. If the score is low, you may want to work on improving it before taking out a personal loan.
One advantage of taking a personal loan is that their interest rates are usually fixed. Those rates do not jump around like credit card rates can. Another advantage is that it gives your credit report a mix of different types of credit – and that can help raise your credit score.
