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When it comes to lending, we all know the basics. You take out a student loan to get an education, a mortgage to buy a house, an auto loan to buy a car and for everything else, you charge them to credit cards. There is a different type of loan that’s growing in popularity and may offer you more flexibility beyond the standard lending options.
It’s called a personal loan. This online personal loan usually has a short term of usually between one and seven years. The personal loan interest rate is usually based on a combination of the borrower’s personal income and credit history. Your credit score, income, the amount you borrow and the loan terms will affect the rate you receive on a personal loan online.
Both big and small personal loans are available at banks, credit unions and – more recently – online lenders. These online companies are introducing new types of quick payday loans that make it easier for consumers to apply and use them.
To guide you through your decision on taking a loan, let’s look at some pros and cons of online personal loans.
Personal loan pros:
- You can borrow more than you actually have with a credit card.
- Your online personal loan repayments may be in fixed installments. This means that your repayment amount is going to be the same every month which makes it easier to budget.
- The interest rate on a personal loan is usually also fixed (but not always).
- You can consolidate several debts into one personal loan to potentially reduce your monthly repayment amounts. However, this may mean extending the length of the loan and paying more for it overall.
- You can choose how long you would like to take to repay the loan. Keep in mind that the length of a loan will affect the interest amount.
Personal loan cons:
- Online personal loans have higher rates of interest than some other types of borrowing, especially if you want to borrow a smaller amount, such as $1,000.
- Since the interest rate may reduce the more you borrow, you may be tempted to take out a bigger amount than you need.
- Older loans (taken out before 1st February 2011) usually have an early repayment charge if you want to pay off your loan early.
How to get the best personal online loan?
- Have your guard up and don’t just accept the first rate you are offered by your bank or credit society.
- Shop around to see which providers are offering the cheapest APRs (Annual Percentage Rate). Compare representative APRs (don’t forget you may end up paying more overall if you have a poor credit history).
- You should consider peer-to-peer loans if you have a good credit rating. These loans may offer lower interest rates and can be available for smaller amounts. They are featured in almost every comparison table.