4 Common Questions About Personal Loans

4 Common Questions About Personal Loans

What is an unsecured personal loan? Consider this your guide.

Life can come with major (and sometimes surprise) purchases — and it’s not unusual to need help managing those costs. That’s why people may consider borrowing money. In fact, more than half of Americans have taken out a personal loan in their lifetime.1

Whether you’re funding a wedding or paying a car repair bill, there are many reasons to look into different funding sources. But is a personal loan right for you? With a little research, you can make the decision that best fits your financial goals. Here are common questions and answers to consider.

What is a personal loan?

When you take out a personal loan, you’re borrowing money from a bank, credit union, or online lender. You pay those funds back in fixed monthly payments. Although these loans can be used for different purposes, many people use them to help cover personal expenses. Think: vacations, medical bills, home renovations, and debt consolidation. Borrowing amounts range from a few thousand to tens of thousands, and the average payback period typically ranges from one to seven years.2

Most personal loans are unsecured, which means they’re not backed by collateral like a house or a car. Lenders will typically rely on information like your credit score to determine whether you qualify. The better your score, the more likely you can secure a low interest rate — reducing the total amount you’ll repay over the term of the loan. Keep in mind that like other forms of credit, such as a credit card, a personal loan can boost your credit score if you pay it back on time.3

How long does it take to get a personal loan?

The process may depend on factors such as the type of lender you borrow from and the accuracy of the information on your application. In general, online lenders tend to be the fastest option if you need money quickly and may take as little as one business day once the loan is approved.4 By comparison, banks and credit unions may need up to seven or more.4

While every application is different, there are ways to speed up the process.

3 tips for faster approval

  1. Check your credit score: Before you apply, look at your credit score and verify your report is free of errors. Knowing your score can help you find the right lenders who will work with your qualifications.
  2. Review your application: An application with correct information will prevent time-consuming obstacles. If there are errors, your lender will have to contact you.
  3. Get pre-qualified: After completing a short application, your lender will run a soft credit inquiry (that won’t affect your credit score) and present loan offers you qualify for.

What is the interest rate on a personal loan?

Your interest rate — a percentage of the loan principal that lenders charge — will be based on factors like your credit score. Because personal loans have a fixed repayment term, they frequently offer a lower rate than credit cards.

Don’t forget to also consider the annual percentage rate (APR), which includes the interest rate plus additional charges. Origination fees, for example, cover the costs of processing your loan application. It’s worth looking into opportunities to reduce those fees: A higher credit score, for example, can mean a waived origination fee, while setting up autopay may reduce your interest rate.

Some applicants wonder: Is personal loan interest tax deductible? Although the answer is usually no, there are exceptions — so ask a tax professional if that might apply to your situation.

Can you refinance a personal loan

Good news: personal loans can be refinanced. This strategy involves taking out a new personal loan to pay off the old one for the purpose of saving money on interest or extending the payment term. If the new loan has a lower rate, you may reduce your monthly payments.

Before you move forward, it’s also important to consider potential challenges. For instance, you might spend more in interest for a longer repayment term. Plus, if the lender charges an origination fee on the new loan, you should factor in that extra cost. To avoid confusion, make sure to check with your lender about their policies. 

The decision to use a personal loan is different for everyone. When you know the answers to common questions about personal loans, it may be easier to figure out the option that works for your lifestyle.

Getting a personal loan can help you reach your financial goals. Check your loan options today, with no obligation or impact to your credit score. 

Sources:

  1. “Personal loans statistics,” March 8, 2021, Finder.com
  2. “What is a personal loan? Terms to know,” Oct. 12, 2021, Credit Karma
  3. “How Does a Personal Loan Affect Your Credit Score?,” July 6, 2021, NerdWallet
  4. “How Long It Takes to Get Approved and Get a Personal Loan,” Oct. 14, 2021, Credible
LendingPoint is an Atlanta-based lender and servicer, redefining who can access money at fair rates.

USA PATRIOT ACT NOTICE: IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. What this means for you: When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver's license or other identifying documents.

* Applications submitted on this website may be funded by one of several lenders, including: FinWise bank, a Utah-chartered bank Member FDIC; Coastal Community Bank, Member FDIC; and LendingPoint, a licensed lender in certain states. Loan approval is not guaranteed. Actual loan offers and loan amounts, terms and annual percentage rates ("APR") may vary based upon LendingPoint's proprietary scoring and underwriting system's review of your credit, financial condition, other factors, and supporting documents or information you provide. Origination or other fees from 0% to 6% may apply depending upon your state of residence. Upon final underwriting approval to fund a loan, said funds are often sent via ACH the next non-holiday business day. Loans are offered from $2,000 to $36,500, at rates ranging from 7.99% to 35.99% APR, with terms from 24 to 60 months. Georgia loans have a minimum $3,500 loan amount. For a well-qualified customer, a $10,000 loan for a period of 48 months with an APR of 23.72% and origination fee of 6% will have a payment of $324.48 per month. (Actual terms and rate depend on credit history, income, and other factors.) Customers may have the option to deduct the origination fee from the disbursed loan amount if desired. The total amount due is the total amount of the loan you will have paid after you have made all payments as scheduled.

1. Alimony, child support, or separate maintenance income need not to be revealed if you do not wish to have it considered as a basis for repaying this obligation.

2.  The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract); because all or part of the applicant’s income derives from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The federal agency that administers compliance with this law concerning FinWise Bank is the FDIC Consumer Response Center, 1100 Walnut Street, Box #11, Kansas City, MO 64106. The federal agency that administers compliance with this law concerning Coastal Community Bank is the Federal Reserve Consumer Help Center, P.O. Box 1200, Minneapolis, MN 55480. The federal agency that administers compliance with this law for LendingPoint is the Federal Trade Commission, Equal Credit Opportunity, Washington, DC 20580.

Click here to see our current list of state licenses

California residents click here ››

Wisconsin residents click here ››

Ohio residents click here ››

LendingPoint's NMLS #1424139 Visit NMLS Consumer Access