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A Beginner's Guide to Personal Loans

By: Doug Sypolt, Director of Consumer Loan Operations

Posted on 7/31/2019 5:00:00 PM

Loans can be a great tool for people who need a strategic solution for their personal finances. Personal loans can help you in a number of financial situations, but before you dive in to filling out applications, there are some important basics to understand first.

Here is our personal loan guide for beginners:

What is a Personal Loan?

A personal loan is a fixed amount of money given to you by a credit union or bank with a fixed interest rate and repayment terms. Unlike other types of loans, such as a car loan, personal loans often do not have a collateral attached. Because of this, the interest rates for personal loans can be a bit higher than other loans. 

For example, a car loan uses the car as collateral. If you don’t make payments, the car will be repossessed. For a personal loan, there is usually no collateral, so there is nothing to repossess if you don’t make your payments. To counteract this, personal loans have higher interest rates. 

How Can You Use a Personal Loan?

A personal loan doesn’t have any stipulations on the way you use it. It is simply a sum of cash that you can use in whatever way you like. Here are some of the typical uses for personal loans: 

Home Improvement

Making repairs and updates to your home can require a lot of upfront resources, so many people use personal loans to make these improvements. 

Unexpected Emergencies

The unexpected does happen, and while it’s wise to save an emergency fund, sometimes even that isn’t enough to cover an unfortunate circumstance, such as being displaced by a storm or accident, or a suddenly needing to take care of a family member.

Medical Expenses

Most insurance plans only cover major medical expenses up to a certain point. Expenses such as deductibles, co-insurance, and even at-home recovery costs or extended time off work might need to be covered upfront and out of pocket. Personal loans can be a great resource to cover these expenses.

Debt Consolidation

Paying off debt is a key element of healthy credit. Higher interest debt costs more over time, so taking out a personal loan with a lower interest rate can be a smart financial decision.

Understanding Personal Loan Terms

When you want to apply for a personal loan, you’ll come across a few key terms in your research.

Interest Rate

The interest rate, usually expressed as a percentage, is the amount of money you’ll pay back in addition to the amount borrowed. For example, if you took out a $5,000 personal loan at an interest rate of 10%, you’d have to pay back $5,500 ($5,000 + $500 or 10%).


Alongside interest rates, some personal loans include additional fees. The APR, or annual percentage rate, is the yearly amount you’ll pay in addition to the borrowed amount including the interest rate and any fees.

Repayment Terms

The repayment terms are what dictate how long you will have to pay back your loan, plus interest and fees, as well as the minimum amount you’ll pay each month. For example, the repayment terms for the loan in the first example might be 36 months, which means you’d be required to pay a minimum of approximately $150 every month.

Borrowing Minimum and Maximum

These terms indicate the minimum or maximum amount you are allowed to borrow. These terms might be based on the type of personal loan you’re taking out, as well as your credit history and other factors.

Prepayment Penalties

You might want to pay your loan back before the end of your repayment terms, but doing so could mean paying extra. Not every loan has prepayment penalties, so be sure to know all the terms of a loan before applying.

Additional Terms to Consider

Some lenders include additional fees, such as origination and service fees. These additional costs can add up quickly, so be sure to look over all of the fees attached to your loan before you sign on the dotted line.

How to Apply for a Personal Loan

Applying for a personal loan is straightforward. Once you’ve read over all of the terms from the lender, simply fill out the application and wait for approval. The lender will review your application and consider a number of factors, including your credit history, your debt-to-income ratio, and your employment and income. The better these factors, the more likely you will be to qualify for a lower interest loan.

Should You Take Out a Personal Loan?

First and foremost, you should only ever take out a personal loan if you can afford to pay it back. Personal loans are meant to be strategic financial decisions that can help you become more financially fit. They aren’t meant to be seen as free money, and they always come with a cost.

Also, from time to time, we have special offers just for personal loans. Check out our Special Offers page.

If you're ready to get started, Apply for a Personal Loan today!

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