What is a Personal Loan and How to Use it?

Personal Loans

A personal loan is a long-term unsecured loan. A personal loan allows the borrower to get a large amount for an extended period. It usually has fixed interest rates and fixed monthly payments. 

A personal loan is universal. It can be taken for any borrower’s needs, such as home renovation, medical bills, weddings, or vacation trips. In addition, a personal loan can be used to consolidate debts and improve your credit history.

Most often, as part of a personal loan, a borrower can receive from $1,000 to $50,000. However, there are offers up to $100,000. 

The estimated APR of a personal loan will directly depend on the borrower’s credit score. The higher the borrower’s credit rating, the lower the APR can be obtained.

For example, holders of an excellent credit rating (720-850) can count on a 10.6% APR. Borrowers with good credit scores (690-719) can expect an APR of around 15.7%.

Those with a fair credit rating (630-689) can expect a 19.4% APR.

And the highest APR falls on the share of holders of a bad credit rating (300-629), which will be 25.2%.

Average rates are based on aggregated anonymous data from March 1, 2022, to August 31, 2022. Rates are estimates and do not apply to any lender. The lowest credit scores—usually below 500—are unlikely to qualify. The information provided only applies to lenders with an annual interest rate below 36%.

The terms of personal loans usually range from 12 months to 36 months. However, in some cases, they can reach 84 months.

For repaying a loan, lenders usually use an amortization schedule. It means that the monthly payments do not change, but the distribution of incoming funds varies every month. At first, most of the amount goes to paying interest. Later, the main part of the payment goes to repay the loan. Therefore, the borrower can get acquainted with the details by receiving an amortization schedule after obtaining a loan.