Sue is driving her daughter to a follow-up doctorвЂ™s visit for a broken leg, thinking about paying her recent medical bills. She asks Siri, “How do I get a personal loan?”
Jack has recently started a small food truck business that sells tacos. Sales are booming, but so are his credit card balances. He wants to take out a personal loan to pay off those looming bills and consolidate his debt but isnвЂ™t sure where to start.
If you, like Sue and Jack, have heard of personal loans but find yourself Googling “how to get a personal loan from a bank,” youвЂ™re not alone. Many Americans have researched and taken out personal loans recently. 1 The number of personal loans rose from 16.9 million to 19.2 million from 2017 to 2018. 1 If you think thatвЂ™s a lot of dollars floating around, youвЂ™re right. The total balance for all personal loans grew from $102 billion at the beginning of 2017 to $120 billion at the beginning of 2018. 1
Sometimes personal loans are referred to as an installment loan, but the two terms really mean the same thing. Personal loans can be used for a lot of different thingsвЂ”thatвЂ™s part of the beauty.
To get a personal loan, youвЂ™ll first need to apply for one from a bank or online financial company. Not everyone who applies will qualify, but if you do, https://cashcentralpaydayloans.com/payday-loans-ks/ the institution ount, such as $10,000. Then you pay it back during a set amount of time.
Each payment is usually called an installment. For example, you might have a monthly payment, or installment, of $300 each month. YouвЂ™ll typically owe that amount each month for a certain number of years until you pay back the full amount.
Personal loans are usually unsecured. That means that personal loan requirements donвЂ™t include collateral to back up the loan. 2
Collateral is an asset, like a car or home, which might be used to pay back the loan if you are unable to send in payments for a long time.
If a loan does require collateral, itвЂ™s called a secured loan. A home loan or a car loan would be considered a secured loan. How do they work? Well, for example, when you take out a mortgage, the home is usually used as collateral. If you miss too many mortgage payments, the financial institution that lent you the money could take your home in return for the money you received and werenвЂ™t able to repay.
Since personal loans donвЂ™t require collateral, that means that interest can sometimes be higher. 2 Interest is a fee for using the bankвЂ™s money. That interest is typically included in your monthly installment payments.
Taking out a personal loan can also be a way to consolidate debt. This is the idea of putting all your debts together. If you have several different debts and find it hard to keep track of them, combining them into a personal loan can make it easier to focus on sending out just one payment.
Another key benefit of personal loan consolidation for debt is that you might get a lower interest rate. If you have credit card debt on a few different cards that have a high interest rate, you could get an installment loan to pay off the credit card debt. Instead of paying off several debts with high interest rates, you can work toward paying off one personal loan to pay less overall.