What is a Personal Loan and Do you Need One?

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Even if you have money in a savings or retirement account, you may still need to borrow cash to buy certain things or meet certain financial obligations. Rather than cash out your savings or 401k, you may instead consider taking out a personal loan. As you contemplate this financing, you may need more information to decide if it is best for your particular financial situation. These facts about personal loans could help you make the best decision about your circumstances.

 

Defining Personal Loans

Personal loans typically are unsecured lines of credit that borrowers like you obtain from banks or credit unions. Your approval or denial for this money is based on your credit score and your ability to pay back the money in the allotted amount of time. The amount for a personal loan can vary and be based on what you plan to buy with the money. Because many of these loans are made on the determination that you have relatively good credit and can pay back the money on time, you may enjoy a lower interest rate and lower monthly payments. To find out more about what your interest rate would look like, a company like Power Can Financial Services Inc in Toronto can collect information about your income and credit score and give you an idea of what you can expect.

 

Common Uses for Personal Loans

As indicated by its name, this type of loan is generally used for personal reasons. Unlike a mortgage or student loan, this line of credit is extended to borrowers like you to help you obtain consumer goods. The types of goods for which this loan can be used vary greatly and could be virtually limitless in some cases and depending on the financier. Many people use these loans to obtain or secure:

 

• Engagements rings or luxury jewelry

• Vacation plans

• Wedding arrangements

• Debt consolidation

• Artwork or collectibles

• Home Improvements

• Medical expenses

 

The Cost of Personal Loans versus Other Forms of Credit

Because you often have to meet tighter credit guidelines for this type of loan, you may find that this financing is cheaper than using credit cards or taking out a payday loan. These loans generally have lower interest rates and lower monthly payments. Credit cards and payday loans typically charge higher rates and come with significantly higher monthly payments, both of which could increase your financial burden. Calculate all the costs before determining your best option.

 

These facts about personal loans may help you decide if you really need one or if you might fare better to save up the money for your purchase. If you need the money now and lack the cash in savings, you might be well advised to take out a personal loan for your financial obligation.

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