What is a Personal Loan?
A personal loan is an amount of money that a lender gives to a borrower. Borrowers can lend personal loans from banks, credit unions, or state-licensed lenders. The borrower has a certain period of time to pay back the loan plus interest accrued over time. The annual cost of credit, which is the amount that the borrower pays in interest and fees, is called the annual percentage rate (APR). The APR may also include fees associated with the loan as well as add-on products like credit insurance; however, these fees can differ depending on who your lender is.
There are two types of personal loans. A secured personal loan requires that you offer up some kind of collateral to guarantee that you’ll repay the loan. With secured personal loans, if you miss your regular payments, the lender can take the collateral and sell it to cover part of your balance. An unsecured personal loan doesn’t require collateral. If you’re able to make your payments on time, the lender’s options are more limited than on a secured loan. Because these types of loans are usually riskier, they often come with higher interest rates.
Benefits of Getting a Personal Loan
While there are many pros and cons to getting a personal loan, it’s important to know that the option is there when you need it. Secured personal loans can be an excellent option for borrowers who have collateral to offer and can lock in a lower interest rate, but don’t let your assets stop you. Whether you are consolidating debt, need cash for home improvement, or want to improve your credit score, personal loans can be a helpful resource when you need it. Regardless of your circumstances, there are many perks to applying for an unsecured personal loan:
1. Personal Loans are Versatile
Personal loans are borrowed money that can be used for a variety of reasons. For example:
- Cover unexpected expenses: Life is full of unexpected surprises, and large expenses can arise. When you suddenly need to pay for an expense, a personal loan can be a great way to do it.
- Finance a large purchase: A personal loan may be the best option for planned purchases, especially if you qualify for an APR that is lower than your credit card. You can use the loan to pay for home improvements, car repairs, or even a family vacation. Personal loans can even be used for weddings or vehicle financing.
- Consolidate debt: Many unsecured personal loans are used to combine multiple debts into one loan with easy-to-manage payments and a lower interest rate. This will not only help improve your credit score, but increase your ability to tackle debt over time.
2. Predictability of Payment Schedule
When paying back a loan, it’s important to know the amount you have to pay back, how much your monthly payment will be, and how long you’ll be making those payments. When you get an unsecured personal loan, this is handled on one credit line, so you can keep track of exactly how aggressively you are paying off your loan. Keeping track of your finances and your debt can be a headache, especially if you have multiple credit lines with different payment schedules. An easy way to stay out of debt is to combine your payments.
3. Great for Building Credit History
Taking out a personal loan requires making regular payments towards an outstanding balance. Lenders typically report your payment records to the three major bureaus, and because regular payments contribute to about 35% of your credit score, this helps significantly improve your credit in the long run. However, if you don’t make your payments on time, it can hurt your credit by default.
4. Consolidate Debt Easily
Debt consolidation loans let borrowers streamline their finances by paying off individual loans and credit card balances with a single personal loan. Not only does this reduce the number of payments you have to remember to make each month, but it may also result in a lower overall interest rate if your credit score has improved since taking out your other loans. At Members Exchange Credit Union, we specialize in debt consolidation and can help by directly paying off your debt rather than disbursing cash over time.
5. Finance Home Renovation
Homeowners can use a personal loan to upgrade their home or complete necessary repairs, like fixing the plumbing or redoing the electrical wiring. A personal loan is a good fit for people who don’t have equity in their home or don’t want to get a home equity line of credit (HELOC) or a home equity loan. Unlike home equity products, personal loans often don’t require you to use your home as collateral since they’re unsecured. A personal loan is best for those looking to finance a small to mid-sized home improvement project or upgrade.
Not renovating your home, but looking to relocate? The average cost of a local move is $1,250 while a long-distance move can cost up to $5,000. If you don’t have that kind of cash on hand, you may need to take out a personal loan to pay for moving expenses. This can be used for transporting your vehicles, belongings, and other additional expenses rather than raiding your savings or emergency fund.
Apply for a Personal Loan with Members Exchange Credit Union | Serving Jackson, MS
The start of the new year can mean a new, financially-savvy you. At Members Exchange Credit Union, you can get a personal loan or open-ended personal line of credit for almost any purpose. Our personal loans are perfect for paying off credit card debt by consolidating with a lower interest rate. With a good credit rating, you can qualify for a loan or credit line with no collateral or security deposit. Contact Members Exchange Credit Union in Jackson, MS today to speak with a Personal Service Representative and start tackling your credit card debt in 2022.