For many homebuyers, a personal loan is one of the most important financial decisions they will make. If you are considering the options for financing your next purchase or refinance, here’s a brief overview of what this type of financing is, and how to navigate it. Keep reading to learn more about loans for property purchases and homeownership.
What is personal lending?
Personal loans are designed to help individuals meet the needs of large life events such as wedding gifts and holiday gifts, child care expenses, travel arrangements, emergency expense funds or other situations where cash flow is critical. These types of loans are often used by people who need money quickly. In addition, lenders may offer personal loans to people looking to improve their credit score or those unable to obtain conventional bank loans.
How does a personal loan work?
Personal loans can be used for any reason that requires cash flow. They can also be used for non-cash-flow related expenses such as car maintenance or vehicle repairs. However, typically loans will include interest and fees, which borrowers must meet in order to apply. With this in mind, the application process takes time and there can be additional costs involved in borrowing if borrowers do not meet certain requirements. The amount of an agreed upon fee is often disclosed upfront and varies depending on the lender. To determine how much a borrower would pay, lenders normally charge an origination fee on top of an initial rate for each $1,000 borrowed and the length of a repayment term. Interest rates normally range from 7% to 30% per year. Some lenders are willing to lend even higher amounts than this, but with higher interest rates, some are not.
What are the advantages of a personal loan?
The main advantage is that a personal loan can be customized specifically for your specific situation. There are many different types of personal loans available, including loans for purchase and refinancing, as well as lines of credit and special line of credit. As a result, finding the right option can vary based on factors such as age, amount of debt, current income and credit score. It is important to understand how to evaluate various lenders, so it is important to research them thoroughly before choosing one. This information can help you create an informed decision by comparing rates and coverage. Additionally, many lenders have online comparison tools to help you calculate loan terms and decide which ones best match your budget, ability and goals.
How are my monthly payments different when I take out a personal loan?
Lenders often require borrowers to put down an initial lump sum amount of money equal to the purchase price of the house. This amount is usually paid down with fixed monthly payments over the course of several years. Borrowers usually keep this same amount until their intended sale or transfer the home after receiving satisfactory documentation of funds or mortgage approval. Once a mortgage is secured, there is no longer a requirement to complete the payment amount. Since lenders will cover part, or all of the balance needed to finance the purchase or repair the home, monthly repayments are generally lower than with traditional mortgages where the homeowner still has to pay taxes, insurance and property taxes. Borrowers should familiarize themselves with the differences between these two types of finances before making a final decision. Even though it is possible to get approved for a mortgage without taking out a personal loan, many lenders require at least some form of collateral to qualify. Otherwise, many lenders have strict guidelines regarding mortgage loan products. While personal loans are generally low risk, if the situation changes significantly, it could lead to significant stress. That being said, it should still be considered an option for long term goals.
How does it compare?
Although there are differences between business and personal loan types, there are some similarities. Both loans are secured loans that require someone to provide assets as security, such as property or securities. Because loans are classified as secured, potential customers are required to give up collateral in exchange for the loan. Although both businesses and personal loans require collateral in order to secure the loan from the lender, certain differences exist. Business loans typically require less collateral than personal loans. Similarly, although both business loans and personal loans require investors to make monthly payments, only business loans typically require minimum payment amounts due to the shorter repayment period and lack of collateral requirements. Lastly, while business loans are considered to be more favorable, personal loans are also favored. Based on data provided by LendingTree, 84.1% of Americans who took out a business loan have returned within 6 months compared to 65.5% for personal loans.
What can a personal loan be used for?
Personal loans are ideal for paying off high-interest debts like student loans or car loans, as well as covering unexpected medical bills or major life changing events. Depending on the cost of these kinds of unforeseen expenses, even small amounts can add up and add significant stress to already stressful times. Many lenders allow for personal loans instead of a short-term car or student loans because they are associated with a larger payoff or return. Another benefit is the flexibility with which a person might use a personal loan or lines of credit. Most personal loans require a smaller down payment than banks require, so they are particularly appealing if one wants to obtain a home deposit. However, they are considered to be great alternatives if there is a good chance of repaying the loan or providing a suitable investment return (such as equity). Regardless, a person can use their personal loan as a bridge to a bigger goal if they choose to seek funding beyond their primary residence. However, a personal loan can also help to offset personal liabilities, like loans and insurance premiums. Also consider that while private loans are considered highly risky, they provide greater control over spending habits that can mitigate risk factors in another way. And since borrowers are generally responsible for all repayments, they can focus on areas of improvement and avoid unnecessary worry.
Personal Loan FAQs: Answers
Is a personal loan required if I already had a job?
A few factors can cause a person to consider applying for a personal loan when they already have a job: they are facing immediate financial difficulty that would otherwise not have been expected, they are working to pay off unsecured debt, they want to acquire equity in their home and they do not want to lose track of existing jobs due to shifting responsibilities, among others. Other circumstances that warrant obtaining a personal loan include a history of delinquent/nonpayment and high levels of personal liability, such as outstanding credit card balances.
Does having a spouse count if I want to take out a personal loan?
If you are married, it is likely that your joint contributions as an owner are likely equal to or less than that of your partner. But even though you share the joint burden equally, as part owner, you are still liable jointly and individually for your spouse’s obligations. Whether it is your own or that of your partner, you can seek legal assistance with a bankruptcy case or other types of litigation to protect yourself, your family members and any other assets held through joint ownership.
What is the difference between a credit card and a personal loan?
Personal loans and credit cards are similar in that you may be able to access your funds or borrow money either from the issuer or by writing checks. You should understand that neither one is required by law before acquiring any capital to start a new business. Unlike business loans, personal loans have fewer limitations on what they can actually do in regards to the financial aspects of a business or your personal financial situation. Therefore, a credit card cannot provide a customer with leverage to take a larger step or make a big purchase. Furthermore, a personal loan allows for greater debt management capabilities than a credit card. This makes a standard personal loan a better choice for many customers. However, credit card companies usually offer rewards points on used credits. Thus, it is important to ensure that the credit limits offered from credit card issuers are sufficient to support your financial needs.
What interest rates can I expect to find when buying out a business loan?
Because personal loans are issued as secured loans instead of being directly backed by the value of real estate, they usually come with a default loan fee as a component of the loan amount. Usually, in excess of 10%, the default fee is charged over a two to five year period of time. Generally, these default charges are based on the industry’s average, and will vary accordingly between industries. While higher defaults may occur in some industries, it is typically not a factor in determining the ultimate cost of the entire transaction. Default loan fees are typically waived by issuing entities. Given the increased risk in purchasing a business loan, these default fees may increase the overall total cost, unless the company insures its risk to a level below the default fee and protects itself against losses. Credit card companies do not issue a default fee. Instead, these companies base their default fees on the percentage of revenue generated per month through fees, commissions and penalties, as well as the actual usage. Default fees are waived by issuing institutions with little financial exposure.
Can I cancel my personal mortgage?
Yes you can cancel your personal mortgage, but only if you file for bankruptcy. Debts related to personal mortgages typically cannot be canceled or transferred after filing for bankruptcy. Even if you owe money to the mortgage servicer, if you were the victim of prior nonpayment, then your payment agreement is considered void and therefore can not be cancelled or extinguished. Not every creditor will honor the validity of the mortgage. This means that if your loan becomes delinquent after filing for bankruptcy, you will lose rights to your mortgage. However, once your creditors have taken possession of your mortgage, the law allows you to cancel it. Just note that canceling a personal mortgage should always be done under proper court supervision. Any cancellation must be made through the trustee, a court appointed receiver or a foreclosure judge. During these proceedings you might be asked whether you wish to