A personal loan is an amount of money you borrow for personal expenses. You can use it for things like home improvements, car repairs, emergencies, medical bills, large purchases, or paying back friends and family.
Personal loans typically come with fixed interest rates, fixed repayment terms, and fixed monthly payments. So what does this mean for you?
- Fixed interest rates. Personal loans have a fixed interest rate. This means your rate will remain the same during the entire length of your loan. The average APR can range from 6–36 percent. However, the APR you’re eligible for is based on your credit history and other financial factors.
- Fixed repayment term. The length of time you have to pay back your personal loan is determined right from the start. This fixed payment term lets you know exactly how long you have to pay off the loan, from several months to several years.
- Fixed payments. Together, the interest rate and repayment term determine the amount of your monthly payment. Your payments are the same each month. When your loan payments fit your monthly budget, it’s easier to pay back your loan on time.
Personal loan facts
- Wider range of amounts: Personal loans are available in a wide range of amounts. You can request to borrow as little as or as much money as you need. Whether or not you’ll get approved depends on your eligibility. If you have a big expense to pay for, personal loans are a much better option than payday loans.
- Longer repayment terms: Lenders of personal loans give you much more time to repay a loan. You have months to years to pay back the loan, unlike payday loans that must be repaid in just a few short weeks. And since you make payments over a longer period of time, they’re much more affordable and easier to pay on time and in full.
- Lower APRs: Compared to payday loans, personal loans have much lower interest rates. Rather than 400 percent payday loans in Steubenville APR, you pay between 6–36 percent. You pay much less for your personal loan than you would a payday loan.
- Collateral may or may not be required: Personal loans come in two forms: secured loans and unsecured loans. A secured personal loan requires collateral. An unsecured personal loan does not. If you have a limited credit history, you may have a better chance of getting approved for a secured personal loan.
Personal loans have stricter eligibility requirements
For instance, some personal loan lenders require borrowers to have a credit history, a minimum annual income, or a certain debt-to-income ratio (expenses vs income).
You can research a few different lenders online to find a good match for your financial situation. You can usually find lenders’ requirements on their websites. If you don’t have a credit history, look for a lender that accepts borrowers with no credit history.
While payday loans and personal loans each have their pros and cons, personal loans are the better option for most people. They are less expensive and easier to pay off on time. They also come in a wide range of amounts, so you have more flexibility to borrow exactly how much you need.
The only real benefit of payday loans is their relaxed eligibility requirements. If you are rejected by multiple personal loan lenders, a payday loan may be your only option. Experts say that payday loans should be used only in urgent situations-and only when you’re confident you can pay back the full amount by your next paycheck.