- May 5, 2022
- Posted by: Curated Contributors
- Categories: Blog, Personal Loans
How do Personal Loan Work?
Personal loans have become huge due to the explosion of online lenders and personal loan providers with a large web presence. With such a high demand for personal loans, we’d like to give you some information about personal loans and try to answer the question, “How do personal loans work?”.
So what exactly are personal loans and how do they work? If you’ve ever taken out an installment loan at a bank or credit union, you probably had some experience in working with personal loans, BEFORE they were even called “personal loans”. Personal loans are basically an installment loan, but typically they do not have collateral. In that sense, personal loans work in a similar way as a car loan, however, they do NOT require to have a car or a large item of value to be used as collateral. Personal loans are typically, but not always, unsecured and do NOT require collateral. Personal loans are typically, but not always, a fixed interest rate loan, as opposed to a variable rate loan. Personal loans also are typically, but not always, set up for regular monthly payments over a set period of time. For most practical purposes, the best way to define a personal loan is an unsecured installment loan that can be used for any personal purpose.
What would a hypothetical personal loan look like? Great question! *Here’s an example of a hypothetical personal loan that will be used for personal purposes:
Personal loan amount $3,000
Personal loan use: Vacation
Personal loan term: 36 months (3 years)
Personal loan interest rate: 13.9% APR
In this hypothetical scenario, the borrower would make fixed monthly payments on their personal loan at a fixed interest-rate for a period of three years (36) months, until the personal loan is paid off.
*Another hypothetical situation of how a personal loan may work in regards to debt consolidation is below:
Credit card balances: Credit Card #1 – $1500 @ 23.99% APR, Credit Card #2 $3500 @ 31.99%, Credit Card #3 – $3,000 @ 27.45% – Total credit card balance = $8,000
Personal loan amount = $8,000
Personal loan use: Pay off all credit cards and have one monthly payment at a fixed interest rate
Personal loan amount = $8,000
Personal loan interest rate = 13.87% APR, Fixed.* Always check with personal loan lender for actual interest rate you are approved for.
Personal loan term = 24 months (two years)
Borrower will make 24 monthly payments on this personal loan until the personal loan is paid off in full.
Compare personal loans: It’s wise to compare personal loans before you apply for a personal loan. If you use Lendzz.com’s personal loan comparison page to compare personal loans before applying for a personal loan, you may put yourself in a bteer position to learn more about personal loans and find a better personal loan interest rate, personal loan term, etc. By comparing personal loans first, you may place yourself in a good position to find better personal loan fees, features, and more. Check out Lendzz.com to compare personal loans today!