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What Can a Personal Loan Be Used For and How Do I Apply?
Personal loans are a popular way to borrow money and can be a good choice for many purposes. In this article, we'll explore the many reasons a consumer might want to get a personal loan. Many people put flexibility at the top of the list. To show why, let's look at the following factors and see how personal loans offer options in each case.
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Collateral
A personal loan is an unsecured loan, a loan that requires no collateral. Collateral would be something of value the lender holds to "back" the loan. Houses, cars, boats, or RVs often serve as collateral. If a borrower fails to repay the loan according to the repayment terms, the lender has the option to take possession of the collateral. Secured loans are generally easier to qualify for than unsecured loans, because the collateral reduces the lender’s risk -
Rates
Personal loans typically have a fixed interest rate, which means the interest rate remains the same over the life of the loan. An interest rate is applied at the inception of the loan and the monthly payments are calculated based on the loan amount, the interest rate and the term. Once calculated, payments remain the same throughout the life of the loan. This makes it great for budgeting—you'll always know how much your monthly payment is, and when it's due
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Terms
Most lenders offer personal loans with a variety of options. Interest rates may vary, based on loan amount, term and your credit score. Loan terms (length of a loan) and loan amounts come in a wide variety. For instance, TD Bank offers personal loans of $2,000 to $50,000 and lengths of 36 to 60 months -
Credit scores
Credit score is a factor when qualifying for a personal unsecured loan. A credit score will determine your interest rate, the amount you will qualify for and possibly loan term as well -
Speed
Some lenders, like TD Bank, may provide funds in as little as one business day. Fast access to payment funds is an important feature. Many online lenders also have application systems that informs you within minutes if you've been preapproved
What are personal loans commonly used for?
A personal unsecured personal loan can be used for just about anything, affording great flexibility. Let's look at some possible uses, and why personal loans can be such effective tools.
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Debt Consolidation of high interest credit cards
Many borrowers use a personal loan for debt consolidation, shifting credit card debt from high-interest credit cards into one payment at a fixed interest rate. This helps consumers simplify their finances by taking multiple, high-interest payments and rolling them into a single set payment monthly -
Home repairs and renovations
Major repairs, like a new roof or siding for a home, can be expensive. Upgrading kitchens or adding patios, decks and pools can cost many thousands of dollars. Personal loans may get you a better repayment term than a contractor might offer. If costs exceed what you can finance with a personal loan, another option might be a home equity loan or credit line. These typically finance larger amounts over longer terms -
Buy a vehicle
A car, truck, boat, motorcycle, or RV can be financed with a personal loan. For new vehicles, though, an auto loan might be worth considering. Auto loans with relatively low interest rates and extended terms are commonly offered by dealers to boost sales -
Vacations
Whether taking an overseas trip, an expensive worldwide cruise or an extended resort stay, a personal loan can finance that big vacation with lower rates -
Wedding expenses
Renting a venue, rehearsal dinners, dresses, tuxedos, rings—they all add up. For your big day and all the expenses that accompany it, personal loans help spread out costs over time and let you focus on the moment
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Emergency funds
They crop up in everyone's life, but sometimes your emergency fund is not capable of covering them. If your car blows an engine, for example, repair costs will likely run high -
Other large purchases
A parcel of land, artwork, jewelry, a horse or a musical instrument—any of these less-common purchases can be tricky to fund, especially if they are to be purchased quickly. Multiple lenders offer personal loans available quickly enough to take advantage of spur-of-the-moment deals -
Medical bills
Specialized tests, surgical procedures, cosmetic surgeries—all these can be difficult to handle financially. A personal loan can be a useful financing solution and help prevent late fees and extra charges from a medical provider -
Moving costs
No matter the reason, expenses quickly increase when moving, especially if you are moving to a new city or state. Shipping companies, truck rentals, temporary lodging, meals, storage units and security deposits can tap anyone's reserve funds. A personal loan can give movers some breathing room -
Funeral expenses
At such an unfortunate time, the last thing anyone wants to worry about is how to pay for funeral costs. If your bank account is not up to it, a personal loan can provide reasonably quick funds without adding to the stress at such a difficult time
How to find the right personal loan
Start to shop around. Check with local banks and credit unions and see what is offered. You might also consider online lenders. See who offers personal loans that best fit your needs. Check out TD Fit personal loan rates and terms with no impact to your credit score.
It is important to determine how much money you need to borrow and what the loan proceeds will be used for. Planning home renovations? A TD Bank home-equity loan might be a good choice. Because it's a secured loan, rates can often be lower, and larger amounts may be available. Plus, there may be more options on repayment terms.
With any loan you review, compare the factors we reviewed above:
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Interest rates. Who has the lowest interest rate? Is it fixed or variable? The range can be wide and will depend on your credit score and other factors
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Will your needs be covered? Loans may have minimum and maximum amounts, and you want to be sure that they amount you are approved for covers your requirements. A loan for too little might leave you searching for additional solutions
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Are there fees? Some lenders charge an origination fee, based on a certain percentage of the total loan amount. Be wary of high fees compensating for relatively low interest rates. You might also come across an application fee. These are charged in advance, and most are non-refundable. Some lenders charge a prepayment penalty — a fee charged for paying off all or a large part of the loan early
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Are the loan terms right for you? More time can mean lower payments, but the borrower pays more in total interest. Keep the payment amounts within your budget, but don't stretch them out unnecessarily
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How quickly are funds available once the loan is approved? Some lenders claim same-day or next-day deposit. Some may take longer. Some might even want to mail a check
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If your loan is to consolidate credit card debt, do they offer direct payment to card issuers? It's faster and might save you some effort
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Some companies offer mobile apps, letting you check balances, credit use and payments on the go. This can be very handy if you travel
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Can you prequalify with only a "soft inquiry" on your credit? A "hard inquiry" may affect your credit score
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Any discount on interest if monthly payments are automatically drafted from your bank account? Some lenders might knock off a bit of the rate for auto-drafts. Besides getting a lower interest rate, you'll never miss a payment or face any late fees
How to apply for a personal loan
If you have an account with a local bank, you might start there. In-person applications offer some benefits. A local loan officer can offer advice, help you navigate the process and maybe even put in a good word for you. Plus, your account with the bank may make you a better risk for your bank to take. TD Bank, for example, has many locations in the eastern United States where you may discuss loan options.
Online applications are very popular, too. Either way, the requirements are similar. Lenders want such information as your annual income (including bonuses and overtime), income from other sources, a verifiable bank account and possibly pay stubs or tax records. Also, they'll ask for your information such as employment history, Social Security Number and regular expenses like rent or mortgage payments. Just gather your information ahead of time and go to the lender’s website.
Planning to apply to multiple lenders? Consider doing it within a two-week timeframe. Lenders often do a hard credit inquiry, and each one may lower your score a bit and stay on your record for two years. But credit scoring companies typically ignore multiple hard inquiries that occur within about 14 days. That means there's likely no harm in applying to more than one lender within a few weeks.
Before signing an online lender loan agreement, make sure terms match those from any preapprovals or prequalifications. Double-check the rates, loan length and any penalties or fees.