We’ve all seen ads for personal loans and even received promotions in the mail, claiming low interest rates and quick cash flow. So are personal loan options too good to be true? Below we break down the upside and downside of these types of loans.
First, it is important to review the basics of personal loans. There are two types of personal loans, unsecured and secured.
A secured loan is a loan that is backed by an asset as collateral (home or car) . If you default on the loan, the lender can take the asset. A secured loan typically offers lower interest rates and better overall loan terms.
Unsecured loans have no collateral, however if default occurs the bank can take legal action in hopes to recoup the money. Due to the fact that these type of loans tend to be riskier, they have higher interest rates and often poor loan terms.
Both types of loans are taken out for a set period of time and have a fixed monthly repayment schedule.
Deciding whether a personal loan is a good fit is largely dependent on the interest rate. Most times the interest rate is determined by your income and credit score. The higher your combined credit score and income the lower the interest rate. Additionally, interest rates may vary by state and bank, making it important to shop around for the best rate.
So is a personal loan a good idea for you? The answer is largely dependent on your specific circumstances. Do you need cash in a hurry, or want to take out a loan without explaining your reason? Then personal loans are your best bet. Below are our favorite personal loan lenders:
Best For: Refinancing student loans. SoFi offers refinancing to those with lower credit scores (650 and above), which makes it easier for people to get financing.
Interest rates: These depend on the kind of loan you are applying for, but student loan refinancing rates are generally: Fixed: 4.25 percent to 7.75 percent APR. Variable: 2.97 percent to 6.15 percent APR.
Loan types: SoFi is best known for student loan refinancing, but it also offers actual student loans for your (or your child’s) education. In addition, it also offers mortgages and personal loans.
Unemployment protection: SoFi offers up to 12 months of protection from paying on your loan if you become unemployed. This is a great feature, although some lenders offer a longer period.
Customer Service: SoFi is best known for its customer service skills and making loans accessible to a wider range of people.
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