Personal Loans
What are Personal Loans?
Personal Loans allow you to borrow money for personal expenses such as the following:
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Home renovations
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Vacation
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Medical Bills
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Unexpected expenses
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So much more!
How do you qualify for a personal loan?
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Proof of Identity: This includes documentation we have reviewed in the past two lessons. (Ex: driver's license, passport, Birth Certificate, etc.)
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Proof of income/insurance: One again, lenders will typically require certain things from their borrower to make sure that they are able to pay them back. Most people recommend a credit score of at least 670 to achieve any success at all in qualifying for a personal loan. Lenders will also review your credit score/history to see whether you are eligible or not. Finally, your lender will examine your proof of residence, your insurance, and other forms of income verifications (ex: bank statements), which could affect their ultimate decision.
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Personal loans typically require a form of down payment similar to the amount of auto loans (ranging from 3-20%)​
Note: You need to understand that compound interest is implemented when you get a personal loan. Similar to mortgages, and unlike auto loans, the longer you keep a personal loan, the more debt you have to pay. So, if you think about it, there is sort of a battle against time; but at the same time, you don't want to bite off more than you can chew (meaning you don't want to pay off what you can't currently pay, putting you in a greater state of debt). The following is a calculator to calculate compound interest: https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
Takeaways:
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Personal loans typically have the same requirements as auto loans and mortgages. You can look at the "Mortgages" lesson for a more intricate description of loan requirements.
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Once again, you can also use the 28/36 rule in the "Mortgages" page to pay off a loan and other debt you may have. You should do whatever you need, however, to facilitate YOUR needs.
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Unlike auto loans, personal loans require compound interest, forcing you to pay more interest the longer you wait to pay off your loan.