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Personal loans can be a good option to cover various expenses. Read on to learn more about the top personal loan topics.
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Personal loans can be used for many reasons, including paying down debt or house repairs. And since they can often be applied for online, and funds can usually be distributed to a borrower’s bank account quickly, they’re often a popular choice for consumers.
A quick look at the most-Googled personal loan topics over the past year shows that borrowers are interested in finding out exactly what personal loans are, why type of debt they’re categorized as, how credit scores affect their terms, and what interest rates are available.
To better understand personal loans, let’s take a closer look at a few of the most popular topics.
1. Personal loans
The most-Googled topic for personal loans was, unsurprisingly, the general topic for what a personal loan is. These loans are versatile because they can be used for nearly anything, including medical expenses, vacations, or home renovations.
They’re also often used for debt consolidation because they offer a simple and predictable monthly payment. The interest rates are typically fixed, and there is a set period that the loans need to be repaid, giving borrowers the same monthly payment each month.
One of the benefits of personal loans is that the application process is often simple. Borrowers can apply online to lenders and find out within one to seven business days if their application has been accepted, according to Rocket Loans.
2. Unsecured debt
The second-most popular topic under personal loans is unsecured loans, which differ from secured loans because they don’t have a physical asset — like a house or a car — tied to them. Credit cards and student loans are also types of unsecured loans.
Personal loans are unsecured debt, and a borrower receives them solely based on their credit worthiness. Because a bank doesn’t have the option of taking a tangible asset if a borrower doesn’t repay the loan, banks make up for this additional risk by charging a higher interest rate than on a mortgage or auto loan.
Higher interest rates add to the overall amount a borrower has to repay for their loan. For example, if you borrow $5,000 at a 10% interest rate for three years, you’ll end up paying
$808 in interest over that period.
If you want to calculate these expenses before applying, you can use a personal loan calculator to help estimate your monthly payment.
3. Credit
A person’s credit score and credit history are some of the most important factors in determining if they will be accepted for a personal loan and what the terms of the loan will be.
Having a good credit score — which is usually defined as 700 or above — can help you secure a better interest rate.
If your score could be better, don’t worry. Some lenders offer personal loans for borrowers with bad credit. Keep in mind that if you have bad credit, you’ll likely have a higher interest rate or different repayment terms that may increase the total repayment amount.
Lowering your debt-to-income ratio — the amount of your monthly income that is spent on debt payments — before you apply for a personal loan may help you improve your terms.
4. Interest rate
The interest rate was in the top five of personal loan terms searched on Google over the past year, and it’s one of the most essential parts of a personal loan.
Most personal loan interest rates are fixed, meaning the rate won’t change over the life of the loan. The rate you receive will depend on your credit history and score, the current market rates for personal loans, and which bank issues the loan.
Because the lender sets the interest rate, it’s crucial for borrowers to shop around before taking out a personal loan. For example, let’s say you’re getting a personal loan for $15,000 with a repayment plan of five years. If one lender offers a 10% interest rate while another offers 11%, the one with the higher interest rate will cost you $445 more in interest over the life of the loan.
In addition to the interest rate, it’s important to compare any fees online lenders may charge. By closely examining the terms, monthly payment, fees, and interest rate, you’ll be able to determine which personal loan is best for you.
Just like the online users who searched Google for information about personal loans, it’s always a good idea to do your research before taking out a loan. Being well-informed before taking on debt can help you determine whether it’s the right decision. And if you need some extra help, you can view our helpful guide to paying off debt here.
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