What is a Personal Loan?
Broadly speaking, a personal loan is a loan from a bank or financial institution that is used for personal (not business or commercial) use. Personal loans may be unsecured, installment loans that can be used to fund necessary expenses or consolidate debts. Recipients of personal loans are often charged a lump sum, up front, fee known as an “origination fee” in exchange for the ability to repay over a period of time – usually over more than 1 year.
Installment Personal Loans vs. Payday loans
In general, payday loans are for a shorter duration than personal loans, have a higher interest rate, and are often paid back in a single, lump sum payment (often the next paycheck). In contrast, an installment loan is repaid over the course of many months and payments are evenly spread out over the term of the loan.
Borrowers with bad credit can turn to personal loans instead of credit cards or payday loans. The personal loan may allow them to have a more manageable stream of payments, and sometimes a lower overall interest rate. The other major benefit of a personal installment loan is that the lender may report the borrower’s payment history to credit reporting agencies. This may help the borrower build a better credit rating when payments are made on time. Loan shoppers should confirm a lender reports to credit bureaus in order to ensure they enjoy this benefit.
Taking better control of your finances
Finally, a personal loan’s repayment schedule can prevent you from falling into worse credit. A personal loan has equal monthly payments and a definite end date to your repayment schedule. On the other hand, a credit card debt can hang over your head forever if you only make minimum monthly payments. If you have a large credit card debt that you are not paying off fully every month, consider consolidating it with a personal loan. The structured nature of personal loan payments can better assist the borrower to develop a budget and stick to it!
At Avant, we provide access to personal loans. Unsecured loans have terms that range from 24 months to 60 months.**