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Personal loans are a great way to pay for much needed expenses. Here are 7 things to know about personal loans.
1. Personal loans are unsecured loans
With a personal loan, you’re getting an unsecured loan. So there’s no need for collateral such as a car or a house. All you need to do is fill out a loan application.
2. Personal loans usually have higher interest rates than secured loans
It may be simple to apply for a personal loan but you’ll pay for that simplicity. Loans secured by a house or a car tend to have lower interest rates.
3. How much you pay for a personal loan depends on your credit
When you apply for a personal loan, a lender will check your credit and the better your credit score the better the rate on your loan. That’s why maintaining a healthy credit score is so important to your financial health. You’ll pay less each time you borrow.
4. A personal loan may charge an origination fee
Some lenders will charge you a fee for processing a personal loan’s application. This fee is called an origination fee. Check for it on your personal loan application and be aware that not all lenders charge them. An origination fee nudges up the price of a personal loan.
5. Check your credit before applying for a personal loan
How much you will pay in interest on a personal loan depends on your credit. And the better your credit, the lower the interest rate on your loan. That’s why it’s a good idea to check your credit report and make sure everything is accurate and up-to-date before you apply for a personal loan. An error on your credit report could be hurting your credit score. And that’s the last thing you want before applying for a loan.
6. A personal loan may charge a prepayment penalty fee
This is a big fee to look for in a loan application. Can you pay off your personal loan ahead of schedule without paying a penalty? Be sure to check.
7. A personal loan may charge penalty fees
Like credit cards, personal loans may charge fees if you should pay late or a check bounces.
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