Whether you need extra cash to repair a vehicle, pay for moving expenses, fund a wedding, or consolidate some debt, a personal loan may be the answer. Unlike many loans with conditions on physical collateral, personal loans are unsecured—which can have both pros and cons. Below, learn more about how a personal loan works and how you can apply for a personal loan online.
What is a Personal Loan?
A personal loan is a loan for a fixed amount, usually distributed as a single lump sum. Most personal loans are used for large purchases or to pay off (or consolidate) debt. Paying off debt with a personal loan can give you a single payment, with a single interest rate, instead of having to make multiple payments at varying interest rates.
Many loans are “secured”—guaranteed with collateral, like a vehicle (for auto loans) or a home (for mortgages or home equity lines of credit). But personal loans are unsecured, which provides you with far more flexibility for spending or using these funds.
Personal loans are a type of installment loan. Some other installment loans include:
- Payday loans. These loans are ultra-short term (sometimes just a week or two) and carry a high interest rate secured by the borrower’s paycheck, which means the lender can garnish your paycheck if you default on these loans.
- Debt consolidation loans. Debt consolidation loans generally have higher limits than payday loans and have lower interest rates. Some debt consolidation loans have more flexible terms, from variable payments to promotional interest rates.
How to Apply for a Personal Loan Online
Applying for a personal loan online is relatively simple. Many lenders offer an online application, which allows you to submit an application at any time of day (or night) from the comfort of your home. This application will request information like:
- Your name, address, Social Security Number, and personal information
- Your borrowing history
- Your income
- Your credit score
- Your mobile banking information
After you provide this information, the lender can decide whether it’s willing to extend a line of credit to you—along with the annual percentage rate (APR), the interest rate, any origination or other fees, and the total overall cost of the loan. It’s important to thoroughly understand all fees and interest charges before you sign a loan contract. You may also be able to use an online loan calculator to assess how much you’ll be paying each month.
How Long Does the Process Take?
Many online personal loans offer quick approval. If your online lender extends a personal loan to you, it will often deposit the funds directly into your bank account. You’ll then be able to spend these funds with your debit card or by writing a check.
Soon, you’ll be required to make your first payment. The lender may offer autopay, allowing you to have the payment withdrawn directly from your bank account each month to ensure it’s not late. Autopay can be convenient, but make sure you’ll have adequate funds in your bank account before you agree to have a payment automatically withdrawn.
What Can a Personal Loan Be Used For?
Personal loans can be used for nearly any legal purpose.
Having to make regular payments on multiple debts can take some juggling. A debt consolidation loan allows you to repay your debts with a single payment at a single interest rate, often increasing the progress that can be made with each payment.
From births to deaths and everything in between, life events can come with some unexpected expenses. Whether you’re paying for a hotel room or funding some unpaid leave from work, a personal loan can help bridge the financial gaps that come up over the course of one’s life.
Emergencies happen, and they often require money to address them. A personal loan can provide a near-instant cash infusion to take care of what needs to be taken care of.
The average American spends more than $12,000 per year on health care. For many, these types of medical bills can require taking on short-term debt. A personal loan can pay off medical bills at a lower interest rate than many other payment options.
Local moves cost an average of around $1,250, while cross-country moves can be closer to $5,000. Personal loans can provide a source of moving funds without having to rely on the sale of a home or an advance on your paycheck.
Whether you’re planning a small courthouse ceremony or a major blowout, an online personal loan can fund your wedding with minimal hassle.
If you don’t have enough home equity to apply for a home equity loan or line of credit, a personal loan can bridge this gap and help you pay for much-needed home improvements and upgrades.
From covering a health insurance deductible and unpaid maternity leave to paying for in-vitro fertilization or adoption fees, starting a family can be pricey. A personal loan can cover these costs in exchange for a low monthly repayment amount.
What Should I Look for in a Personal Loan Provider?
When it comes to choosing a personal loan lender, there are a few factors to consider:
If you need a loan quickly, your lender’s speed may be one of the most important factors. In other cases, you may prioritize the affordability of the loan or the lender’s reputation.
What are the types of personal loan lenders?
Many types of lenders offer personal loans, from banks to credit unions. Different lenders will have different requirements, terms, and conditions, so getting several quotes from different lenders can give you a better idea of the best loan for your individual situation.
How Can I Calculate My Monthly Payments for a Personal Loan?
Your monthly payment is a function of your interest rate, the amount of the loan, and the loan term. A loan with a high-interest rate and short repayment period will have higher monthly payments than a loan with a lower interest rate and a longer repayment period.
Often, your interest rate will be a function of your credit score, your debt-to-income ratio, your annual income, and how much you’d like to borrow. You can compare quotes and rates from different lenders to see what deals are available. If you’re not satisfied with the interest rates you’re seeing, you may be able to increase your credit score or lower the amount you’d like to borrow.
Once you know your interest rate, you can calculate your monthly payments by using an online calculator that multiplies the amount borrowed by the interest rate and then divides this total by your loan term (in months). This will help you see whether the total loan payment will be affordable on your budget.
Frequently Asked Personal Loan Questions
What benefits do personal loans have over other types of loans?
Personal loans can sometimes present more advantages than other types of credit. They tend to have lower interest rates than credit cards, and they have more flexible requirements than secured loans like mortgages and auto loans. If you apply for a personal loan online, the funds could be in your account in less than a day after approval.
On the other hand, personal loans can have higher interest rates than secured loans, and if you have a low credit score, this interest rate may go even higher.
Can you deduct personal loan interest on your taxes?
Some types of interest are tax-deductible, like mortgage and home equity loan interest. However, personal loan interest generally isn’t tax-deductible unless you can show that you used these proceeds to pay off certain business or education expenses that qualify for a tax deduction.
Do personal loans build your credit?
Personal loans are just like other loans in that they can build your credit when used responsibly. However, if you default on (or stop paying) a personal loan, this can harm your credit and decrease your odds of qualifying for future loans and lines of credit. Before taking out a personal loan, make sure you’ll be able to afford the monthly payments.
How can you know your credit score?
Your credit score can be key in predicting your interest rate (and the loan’s affordability). Although your credit score isn’t included on the free annual credit report you’re entitled to receive each year, there are a couple of ways to access your current score.
First, you can apply for a credit card that provides you with a monthly FICO statement or scorecard, giving you free access to your credit score. You could also sign up for a service like Credit Karma that will provide you with an estimate of your credit score. Knowing your score can give you a better idea of what type of loan will work best.
At Integra Credit, we pride ourselves on our friction-free application process. Our advanced underwriting algorithms can accurately predict whether a customer can afford a repayment plan; this allows us to provide quick funding and forego the tedious verification process. If you’re ready to learn more about our loan products, give us a call today to get started.