A personal loan is money borrowed from a bank or credit union that is used to cover any of your expenses. Personal loans are often used for major purchases, home repairs, or other overdue payments.
How do they work?
Personal loans are a type of installment loan (meaning that you receive the money all at once) which you will pay back little by little with monthly or periodic payments. These payments include a portion of the total amount plus interest. As soon as you are approved for a loan, the money will be transferred to your checking account, and you will be able to make immediate use of it.
Do they impact my score?
Like any other financial services such as credit cards or mortgages, personal loans also have an impact on your score. It will depend on how well you pay off the loan on time, which will either build your credit score or hurt your score if you fall behind on payments. When you are approved for a loan it will trigger a hard inquiry on your credit score, which will take away 5 points.
What loan is for me?
When choosing a loan, you should base your decision on the annual percentage rate (APR). According to The Fed, the average annual percentage rate for a 24-month loan is 9.39%, compared to 17.3% for a credit card. There are loans for every type of profile, so take a look at the different loans to identify the best ones for you and to avoid damaging your score.
Personal loans are a good option to cover those major expenses you need help with.