When Does a Personal Loan Make Sense?
If you need to borrow money, there are different types of loans tailored to specific needs.
Categories for loans include: auto loans for new cars, home loans for properties, student loans for education, and business loans for those who want to start or grow a business.
But sometimes people need money for things that don’t fall into those specific categories. In such cases, a personal loan offers flexibility needed to fund life events, achieve personal goals, or simply improve financial health.
Understanding a Personal Loan
A personal loan, also called a consumer loan, is offered by a bank, credit union, or other lender to an individual for personal use.
Often, personal loans are set up as an installment loan. This means the borrower makes fixed monthly payments for a set period – with a personal loan, it’s typically two to five years. Unlike other loans, the money from a personal loan can generally be used for just about any purpose.
What’s the difference between a secured and unsecured loan?
Most personal loans are unsecured and don’t require collateral. The lender doesn’t ask that an asset be used to secure the loan. A secured personal loan can be obtained with an asset, such as a savings account, serving as the collateral.
The interest rate on a secured personal loan will typically be lower than that on an unsecured loan. Whether the loan is unsecured or secured can be based on the loan amount, the borrower’s needs, the program offered by the lender, or the borrower’s financial situation.
How does the personal loan process work?
Applying for a personal loan is usually pretty easy. Here’s how it works at Axos Bank:
You apply for a personal loan. It can be done completely online with the option to speak with a representative.
Our loan team does a soft credit inquiry. This allows us to prequalify you for a loan without affecting your credit score.
If everything looks good, you’ll receive a preliminary offer with the loan terms.
Once you accept, we’ll ask for documentation to confirm your income and bank account details.
We then pull a complete credit report before depositing the loan funds into your designated bank account.
The entire process is quick and easy!
What are the benefits of a personal loan?
Based on the borrower’s individual needs and requirements, personal loans may offer the following benefits:
Lower interest rates than other forms of credit.
No requirement for collateral from the borrower.
Short loan terms — anywhere from three to six years.
No limit on the use of loan funds.
Credit scores are not affected by initial inquiries (at least that’s the case at Axos Bank!).
Common Uses of Personal Loans
Here are some of the common reasons that others choose to get a personal loan.
Debt Consolidation
The interest rates available on personal loans are typically lower than a credit card. Personal loans are often used to consolidate debt on multiple high-interest credit cards into one monthly payment at a lower interest rate.
The interest saved each month can then be applied to the balance to help pay off the debt faster. This isn’t specific to just credit card debt. Any debt that is at a high interest rate is a candidate for this strategy.
Home Improvements or Repairs
Need to make repairs or improvements to your home? A personal loan may be a better option than a home loan. If you don’t have equity in your property, a home loan is often not an option.
A personal loan can make sense in this situation. If you don’t need a large amount of money or you’re looking to get funds quickly, a personal loan may be best to finance your home renovations.
Major Purchases or Events
Personal loans can help with large purchases or events, such as weddings, family vacations, and medical expenses. Using a personal loan instead of a credit card for these purchases can make a lot of financial sense.
You’ll typically receive lower interest rates and higher borrowing limits than you would with a credit card. The set monthly payment amount of a personal loan also makes it easier to budget and pay off the debt faster.
Vehicle Purchase
Sometimes a traditional auto loan is not an option. A personal loan can be the solution when you want to buy a used car for a teenager, purchase the classic car you’ve dreamed about, or fund the restoration of a salvaged vehicle.
Unlike an auto loan, you won’t be asked for a down payment.
It isn’t limited to cars – you could also use the funds from a personal loan to buy a boat or motorcycle.
Financing Hobbies and Side Businesses
How about financing hobbies, personal projects, and small business ideas?
Whether it’s photography, exotic pets, or travel, a personal loan can help you finance your passions. It’s a good option if your hobby becomes a profitable venture or you want to start a small side business.
With personal loans, eligibility is based on personal credit score and income, avoiding the complexities of a business loan. You also get lower interest rates and no collateral requirements.
Add Personal Loans to Your List of Options
The next time you’re in need of extra funds, don’t forget to explore a personal loan.
A personal loan makes sense when you need money quickly, want a short loan term, or want set monthly payments. It’s also a great solution when your needs fall outside the rigid standards of a traditional mortgage, auto loan, or business loan.
You can always run the numbers before you apply. Check out our Personal Loan Calculator to see what amount fits your needs.
Once you’re ready, be sure to add Axos Bank to your list of personal loan potentials. Our experts are ready to help guide you through the process.