What are the benefits of getting a personal loan?

loan application for money

There are many benefits to obtaining a personal loan. They can be a helpful way to make big purchases, pay an unexpected bill, and consolidate debt.

Key takeaways

  • A personal loan is an amount of money that a lender (a bank, credit union, or state-licensed lender) gives to a borrower. The borrower then has to repay the loan plus interest and fees over a set period of time.
  • There are many important benefits of obtaining a personal loan, including debt consolidation, a predictable repayment schedule, and building your credit history.
  • To take out a personal loan, you’ll need to review your financial situation, find the right lender for you, gather all required documentation, and submit your application.

Below, we’ll discuss the many benefits of personal loans. Here’s what we cover:

  • What is a personal loan?
  • What are the benefits of obtaining a personal loan?
  • How do you take out a personal loan?

What is a personal loan?

A personal loan is an amount of money that a lender (a bank, credit union, or state-licensed lender) gives to a borrower (you). The borrower then repays the loan plus interest and fees over a certain period of time.

The annual cost of credit, which is the amount that the borrower pays in interest and fees, is called the annual percentage rate (APR). The APR includes the interest and specified fees. The interest is the price you pay to borrow money stated as a yearly rate.

Application fees, processing fees, loan origination fees, prepayment fees—depending on your lender and the laws in your state, the APR may also include the fees associated with the loan. It might even include some add-on products like credit insurance. However, these fees can differ depending on who your lender is.

There are two types of personal loans:

Secured personal loan

This type of loan requires that you offer up some kind of collateral (your car, house, or something of value) to guarantee that you’ll repay the loan. With secured personal loans, if you miss your regular payments, the lender can take the collateral and sell it to cover part of your balance.

Unsecured personal loan

An unsecured personal loan doesn’t require collateral. So if you’re unable to make your payments, the lender’s options are more limited than on a secured loan. Since this type of loan is riskier for the lender, it often comes with higher interest rates.

What are the benefits of obtaining a personal loan?

Here are five benefits of taking out a personal loan.

1. Personal loans can be used for many things

When you get a personal loan, it can be used for a variety of personal reasons. For example:

  • Cover unexpected expenses: Life is full of surprises, and large expenses can be unpredictable. When you suddenly need to pay for an expense, a personal loan can be a great way to do it.
  • Finance a large purchase: A personal loan may be the best option for major purchases, especially if you qualify for an APR that’s lower than your credit card. You can use the loan to pay for home improvements, car repairs, or even a family vacation.
  • Consolidate debt: Many unsecured personal loans are used to combine multiple debts into one loan with easy-to-manage payments and a lower interest rate.

2. One personal loan payment is easier to manage than multiple credit card accounts

Keeping track of your finances and your debts can be a headache, especially when you have different credit cards with multiple payment schedules to remember. Between keeping up with payments, managing your balance, and paying interest, it can be hard to keep yourself out of credit card debt.

But when you have a single personal loan, you only have one payment and one balance to worry about. Having all the money you’ve borrowed in a single place can make tracking and managing your finances a lot easier.

3. Personal loans provide a predictable repayment schedule

When paying back a loan, it’s important to know a few details:

  • The total amount you have to pay back
  • How much money you have to pay each month
  • How long you’ll be making payments

When you get a personal loan, all this information is provided by the lender. This allows you to know exactly how much you owe and when you owe it.

4. Personal loans allow you to consolidate debt

Do you have multiple loans or credit card bills? You may be able to take out a personal loan at a lower interest rate in order to pay off other high-interest debts. Plus, you might be able to lower your monthly payment total by consolidating debt into one personal loan payment.

5. Personal loans help build your credit history

Did you know that you can build up your credit history when you take out a loan? For example, here at Oportun we report your payment activity to national credit bureaus. When your lender reports your payments to national credit bureaus and you make your payments on time and in full, it helps you build a strong credit score. It’s also important to remember that if you don’t make payments on time and in full, this will also be reported.

approved loan application

How do you take out a personal loan?

Now that you understand the benefits of a personal loan, how do you get one? Here’s a look at the process:

1. Review your finances

Once you calculate how much you need to borrow, think about how you’re going to make payments. Figure out how much can you afford to spend on your loan payments each month.

2. Find the right lender

Take into consideration your needs and financial situation. Make sure the lender offers the amount you need and offers an affordable payment plan. If you have little to no credit history, look for a lender like Oportun who considers more than your credit score when you apply. If you know your credit score isn’t great, consider looking at lenders that offer secured and unsecured loans. Secured loans can be much easier to get approved for.

3. Gather your documents

The documentation required for a personal loan will vary depending on the lender’s requirements. For example, Oportun doesn’t require that you have a Social Security number or a credit history to apply.  What documentation you need will also depend on the type of loan you choose. Here’s what lenders usually ask for:

  • Secured personal loan (secured by your car):
    1. Vehicle title
    2. Vehicle registration (original or copy, must be registered in the state)
    3. Driver’s license (U.S. or international)
    4. Proof of income (pay stubs or bank statements)
    5. Proof of address
    6. Pictures of your car (front, back driver side, passenger side, VIN, and odometer)
    7. Bank account and routing number
  • Unsecured personal loan:
    1. A valid photo ID (driver’s license, passport, consular ID card, non-U.S. ID card)
    2. Proof of income
    3. Proof of address
    4. Up to four personal references

4. Apply for a loan

Applying for a personal loan is fairly easy and often takes less than 10 minutes. The lender will review your loan application and confirm that you’ve sent in the right documentation. Once approved, most loans are funded within 24 hours. Some lenders can fund your loan the same day or even get you money in as little as two hours.

5. Use the loan

Once you’ve received your funds, you can spend the money on the personal expenses you need it for.

6. Start making payments

You’ll need to start making regular payments on your loan after you get your money. To make sure you’re always on time, set a reminder on your phone or set up an automatic payment schedule. This will help you make sure you never miss a payment.

Personal loans with Oportun

At Oportun, we offer personal and secured personal loans that are made for your future. They range from $300–$10,000 and are available even if you have no credit or limited credit history. Our personal loans offer all of the above benefits, plus:

  • Choose from budget-friendly payment plans
  • In-person support at hundreds of locations nationwide
  • No balloon payments or prepayment penalties

Ready to get started? We are too.

Sources

Experian. Personal Loan Debt Continues Fast-Paced Growth.
Consumer Financial Protection Bureau. The Consumer Credit Card Market.
FRED. Commercial Bank Interest Rate on Credit Card Plans.