best personal loan rates for good credit in 2023: Personal loans are borrowed money that can be used for major purchases, debt consolidation, emergency expenses, and more.
These loans are repaid in monthly installments over a period of a few months or a few years. It may take longer depending on your circumstances and how diligent you are in paying.
In some cases, you may want to try something else before taking out a personal loan, such as making a small purchase or negotiating a lower price or value.
How personal loans work
Once you are approved for a personal loan, the funds you receive will be deposited into your bank account in a lump sum.
Transfers can take up to 24 hours or a few weeks, depending on the lender. You will have to start making monthly payments as soon as the loan is paid off.
Most personal loans have a fixed interest rate, which means your payments will stay the same each month. Personal loans are also usually unsecured, meaning there is no collateral behind the loan.
If you don’t qualify for an unsecured personal loan, you may have to use collateral for approval, such as a savings account or certificate of deposit.
You can also ask a friend or family member to co-sign your personal loan to help you get approved. Whatever the purpose of your loan, you likely have several options available to you. Financing is available through credit cards, home equity loans, and more.
However, in many cases, personal loans are an ideal solution for consumers. Personal loans are often less expensive than credit cards, and funding is faster than home equity loans or HELOCS.
Additionally, there is usually no collateral attached to a personal loan. It’s a less risky form of financing than secured loans like home equity products meaning your home, car, or savings account isn’t immediately at risk if you default.
How to tell if a personal loan is right for you
While it’s always important to consider your financial situation before taking out a loan, sometimes a personal loan is the best way to finance a big purchase or project that you can’t already afford.
Debt consolidation
The most common cause of personal borrowing is debt stability.
When you apply for a loan and use it to pay off multiple other loans or credit cards, you’re combining all of those outstanding balances into one monthly payment.
This grouping of loans makes it easier to work out a timeframe for paying off your balance without being overwhelmed. One of the best benefits of using a personal loan to pay off your credit cards is the lower interest rate.
With lower rates, you can reduce the amount of interest and the time it takes to repay the loan. With lower rates, you can reduce the amount of interest and the time it takes to repay the loan.
Alternative to payday loan
If you need money for an emergency, using a personal loan instead of a payday loan can save you hundreds of dollars in interest charges.
According to the Federal Reserve Bank of St. Louis, the average APR for a payday loan is 391 percent.
While the maximum interest rate on a personal loan is usually 36 percent. Payday loans have short repayment terms, usually on your next payday, between two and four weeks. This quick turnaround time often makes it difficult for borrowers to repay the loan by the due date.
Borrowers are usually forced to renew the loan instead, causing the accrued interest to be added to the principal. This increases the total interest owed.
Personal loans have longer tenures and usually cost the borrower very little in total interest.
Home Remodeling
Homeowners can use a personal loan to upgrade their home or complete necessary repairs, such as fixing plumbing or redoing electrical wiring.
A personal loan is suitable for people who do not have equity in their home or do not want to get a home equity line of credit or home equity loan.
Unlike home equity products, personal loans often don’t require you to use your home as a mortgage because they’re unsecured.
Moving costs
The average cost of a local move is $1,250, while a long-distance move costs $4,890. If you don’t have that kind of cash on hand, you may need to take out a personal loan to pay for moving costs. Personal loan funds can help you move your household goods from one place to another, buy new furniture, move your vehicle across the country and meet any additional expenses.
