Personal Loan Learning Center
What is a personal loan?
A personal loan is an unsecured loan that is issued and supported only by the borrower’s creditworthiness, rather than by any type of collateral. Unsecured loans—sometimes referred to as signature loans or personal loans—are approved without the use of property or other assets as collateral. The terms of such loans are therefore most often contingent on the borrower’s credit score. Typically, borrowers must have high credit scores to be approved for unsecured loans.
How does an unsecured loan work?
An unsecured loan stands is different than a secured loan, where a borrower pledges some type of asset as collateral for the loan. The pledged assets increase the lender’s ‘security’ for providing the loan. Examples of secured loans are mortgages or car loans. Generally, unsecured loans require higher credit scores than secured loans.
What type of personal loans are available?
We offer a term loan, which is a loan that the borrower repays in equal installments until the loan is paid off at the end of its term. While these types of loans are often affiliated with secured loans, there are also unsecured term loans.
What terms and interest rates are available for personal loans?
Terms typically range from two to five years. The borrower receives a lump sum and repays the loan with equal monthly installments. Unsecured personal loan interest rates are usually fixed. Interest rates on unsecured personal loans vary according to credit rating and how much you owe to other creditors.
What can I use my personal loan for?
Unsecured personal loans can make sense in several circumstances, including when you need to:
- Consolidate debts (payoff credit card debt)
- Make a large purchase, such as for home furnishings, etc.
- Finance home remodeling
- Pay medical bills
- Pay for wedding
- Funeral expenses
- Moving expenses
What are some common personal loan requirements?
- Minimum credit score: 680
- Minimum age: 18 or higher
- Minimum employment history: 6 months with current employer
- Loan Payment-to-income ratio: 20% maximum
What documents are required for a personal loan?
Lenders must verify a few items to verify eligibility for a personal loan which can include:
- Identity Verification (may be done electronically)
- Proof of Address (may be done electronically)
- Verification of Income (may be done electronically)
Should I use a credit card or get a personal loan?
While personal loans may have higher interest rates than secured loans, they often offer lower interest rates than credit cards. Using a personal loan to pay off credit card debt could help you save money on interest and potentially get out of debt faster.
What is a pre-payment penalty and do personal loans have one?
A pre-payment penalty is a fee charged to a borrower who pays off a loan before it is due. Typically, there is no prepayment penalty on a Personal Loan. You can pay your loan back early if you choose, without additional fees or fines.
Do I need to pay any fees to get my personal loan?
In addition to knowing your interest rate, it’s important to know whether your personal loan comes with any added fees. Additional fees can include origination fees, which can cost between 1 to 6 percent of your loan amount and/or closing fees. Before you take out a personal loan, make sure you understand all fees you’re expected to pay so there won’t be any surprises.
The Learning Center is an educational tool and the content is for information purposes only and is not intended to provide investment, legal, tax, or accounting advice, nor is it intended to indicate the availability or applicability of any Ladysmith Federal product or service to your unique circumstances. All examples are hypothetical and for illustrative purposes. Although we have obtained content from sources deemed to be reliable, Ladysmith Federal and its affiliates are not responsible for any content provided by unaffiliated third parties. You may wish to consult an appropriate advisor about your unique situation. The applicability of this information to your circumstances is not guaranteed. You should obtain personal advice from qualified professionals.