Definition
A personal loan is usually a fixed term and interest rate loan meant for personal or household use. A fixed rate and term loan means that whatever rate you qualify for and term you choose at the time you sign for your loan and receive your funds will not change. It is locked in.
A personal loan is not to be confused with a personal line of credit. A line of credit allows you to borrow the money you need, as you need it, and you only pay interest on the money you have used. You have an approved limit that you’re allowed to borrow up to. It’s almost like a credit card, except the money is disbursed to your account instead of charged on a card.
The “Catch-All” Loan
The definition may still seem a little vague, but what that means is there are many different uses for a personal loan. Such as:
- Wedding
- Vacation
- Boats
- Medical expenses
- Home improvement projects (although you could also apply for a Home Equity Line of Credit for this)
- Funeral expenses
- Bill consolidation (this is particularly a good idea when you have other high interest loans or credit card bills that could be combined and refinanced at a lower rate)
- Large purchases such as furniture or appliances
- Last minute, unexpected bills/expenses
- and many more!
Keep in Mind
Although a personal loan is not limited to a reason for your need to borrow money, don’t forget that it is still a loan that you’ll need to pay back, plus interest. If you’re thinking of borrowing money for something that you could wait and save up for instead, that might be the better way to go.
Be sure that you can comfortably afford the payment within your budget for whatever it is you decide to borrow funds for. The last thing you want is to fall behind on other bills because you’re having trouble paying a personal loan you took out for a summer vacation. In that case, take a staycation instead.
Terms for personal loans do vary, so you could borrow for 12 months or even 60 months depending on the amount you need to borrow and your budget. Try not to spread the payments out for too long though if you’re only borrowing a small amount. Yes, your payments will be small, but you’ll also be paying for it that much longer. Life is unpredictable, who knows how your budget will change 1 or 2 years down the road.
A personal loan can be a life saver in situations where your finances just weren’t prepared for an expense that came up. It’s also perfect for some of those bigger purchases that don’t fall into the Auto or Mortgage loan categories. Always be sure you can comfortably afford the extra payments in your monthly budget and remember that if it’s a purchase you can hold off on and save up for instead, that’s the way to go!
How do I know if it’s in my budget?
We mention making sure that this new loan that you’re taking out will fit within your monthly budget. To give you a rough idea of how much you can expect to pay monthly, use one of our handy calculators! We’ve got ones for auto loans, savings and more! The personal loan calculator is just what you need, simply input your loan amount, interest rate and term.
Related Links:
HFS Personal Loans – learn more and apply
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