How do I apply for a personal loan?

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If you’re considering applying for a personal loan but don’t know where to start, we have some tips for you. You’ll first want to see what you might qualify for by reviewing your credit and researching your options based on where your credit stands. From there you’ll need to get together the necessary paperwork and apply for that loan.

When Should I Consider a Personal Loan?

Personal loans are typically sought after if there is a big purchase that needs to be made or there is an emergency, and some unexpected expenses arise. If any of this is the case, then you are probably in dire need of cash very quickly.

A personal loan is a type of credit offering that is given to a consumer for a variety of different reasons; some of which we have already mentioned. They are usually not considered for a more specific purpose such as buying a home or car.

Personal loans are installment loans which means if you are approved by the lender, you will receive a lump sum of cash that you will need to repay in a certain amount of time as dictated by the lender.

Personal loans are often unsecured, so you will most likely find much higher interest rates than you would if you were seeking a secured loan. But, you will also hopefully find rates that are much lower than if you were to use your credit cards instead.

Because personal loans are not secured, they may require a much higher credit score for approval. If you find that your credit scores may be lacking, you will want to consider other financing options that may be available to you.

A few scenarios indicative of choosing a personal loan could be any of the following:

  • A home improvement project
  • Financing for a business purchase
  • A much-needed vacation or getaway
  • Payment for a medical procedure
  • Financing for a wedding or other big event
  • Appliance purchase
  • Debt consolidation

Personal Loan for Debt Consolidation

One of the most common reasons people choose a personal loan is for debt consolidation. However, unless you have a concrete repayment plan in place that is manageable, you may want to reconsider a personal loan and instead look into peer-to-peer financing.

A personal loan is a viable solution for debt consolidation if you have significant debt, but it is not out of control. When used for a moderate amount of debt, a personal loan for debt consolidation makes sense and may save you some money when it comes to interest.

However, you will want to make sure that your spending remains under control so that the debt goes away instead of grows because you suddenly have access to a lump sum of funds due to the personal loan. Make sure to use the personal loan as intended and make the payments on time.

Personal Loan Versus Peer-to-Peer Lending

Peer-to-peer lending (P2P lending) is when money is borrowed from a business through an online service that matches lenders with borrowers. The loan given by the lender is not secure and is not protected by any government guarantee which makes it a higher financial risk for the lender.

An advantage of peer-to-peer lending may be lower interest rates than you would typically see with a traditional bank. The application process also takes a few minutes, so it is a lot easier to shop around to find the best loan opportunity with the best available interest rates.

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