There are times when you need to borrow a relatively small amount of money, and pay it off over the course of a few months, but you don’t want to pay the high rate that is likely on your credit card. In these cases, it can make sense to apply for a personal loan. Some banks will offer a personal loan — also sometimes called a signature loan — to you.
A personal loan is usually unsecured, so you don’t have to offer collateral for such a loan. However, since you aren’t securing it, you might not be able to get a large amount. Many signature loans range in amount between $3,000 and $5,000. However, some banks offer revolving personal lines of credit of up to $15,000, depending on your income level and credit score.
Terms of a Personal Loan
If you get an installment loan, you can usually choose a term ranging from six months to two years. Usually, these installment loans have relatively low interest rates — at least when you compare them to credit card interest rates. If you are looking to borrow money for a year, you might be able to get a rate of between 7.99 percent and 11.99 percent APR, depending on your credit score. That’s still better than paying as much as 19.99 percent APR or more when you carry a balance on your credit card.
When you have an installment loan, you pay on a set schedule, and you can choose to pay it off sooner if you want. This can be a better source of cash than pay day loan or car title loan, and generally comes quickly. If you get a personal loan at the bank where you have your checking account, the money can often be instantly deposited in your checking account.
With a revolving line of credit, you might have to pay a higher rate of interest. However, it’s still usually a better rate than what you would pay with a credit card. Run the numbers to see what is likely to make the most sense for you when it comes to your cash flow needs. The advantage to a revolving personal loan is that you can pay it down as you need, and you don’t have to re-apply for a loan later.
Any personal loan will likely require some degree of documentation and a credit check. If you can pass muster, a personal loan can be a good alternative to higher-rate loans.