What is a personal loan & Does it make sense for your needs?Written by Carly Simon-Gersuk
We here at MoveCU are excited to launch personal loans and credit cards! The timing of this addition we hope will help many individuals amongst the financial hardships they are facing today.
When considering what financial options may best suit your needs, it is important to fully understand what a personal loan is and whether it makes sense for you. While many lenders are offering lower interest rates, others are tightening credit requirements for borrowers to ensure they will receive their money back.
So, what is a personal loan? A personal loan is money borrowed from a credit union, bank or lender that you pay back in fixed payments/installments. There are two types of personal loans, unsecured and secured loans. Unsecured loans, the most common personal loans, are not backed by collateral. This means that lenders make the approval decision based on your creditworthiness, such as credit history, income and debts. Secured loans are backed by something you own, which may lead to cheaper fees/rate, but you could lose the asset if you break the fixed agreement.
The money you borrowed for your personal loan can be used for anything. For example people may use it for medical bills, consolidating debt, and more. As enticing as personal loans are, there are factors to consider if it makes sense for you.
First let’s look at personal loans versus credit cards. If you have good credit you may qualify for a 0% introductory APR for a credit card, which if you can pay the interest off before your APR goes up then a credit card may be a better option. On the other hand, if you cannot pay off your balance or make late payments before the introductory rate expires, you may get hit with high interest chargers. So ask yourself, “What is my credit card payment history like?”
Second, banks are probably the first places that come to mind when you think about where to acquire a loan. But remember other lenders, such as credit unions and online lenders, also offer personal loans to qualified applicants. Different lenders have different interest rates and fees. These amounts could range from 5% to 36% depending on the lender and your credit. As not-for-profit and community-based organizations, Credit Unions are focused on the needs of their members so their loans are paid back to members in the form of higher savings interest rates and lower loan interest rates. A win-win for the lender and borrower.
Lastly, let’s take a look at consolidating debt with a personal loan. Paying multiple monthly payments can seem like a hassle, wouldn’t you prefer to pay just one a month? With a personal loan you can use the money to channel all your payments into one. By consolidating you may even have a lower rate than the combined rates on the individual loans you were paying. While consolidating can sometimes make debt easier and cheaper make sure you understand the loan terms and have a pay-back plan to prevent higher rates and fees, and possibly accumulating more debt.
Acquiring a personal loan from a credit union is often a great way to qualify for lower interest rates and better service. If you believe a personal loan makes the most sense for you, apply on our website today and see what you prequalify for!
Written by Carly Simon-Gersuk