Key insights:
- Personal loans provide veterans a lump sum of money that you repay over time in regular monthly installments
- Fixed-rate loans offer predictable monthly payments, while variable-rate loans may change based on market conditions
- The Department of Veterans Affairs does not issue or guarantee personal loans
Transitioning from military service to civilian life often brings new opportunities and unexpected expenses. You might find yourself needing additional funds to cover large purchases or tackle large projects.
Personal loans can provide you with a lump sum of money that you repay over a set period in regular monthly installments. These loans can be used for almost anything, making them a convenient way to get the funding you need.
Before applying for a personal loan, it’s helpful to understand the different types of loans available, and the terminology lenders use.
Interest rate structures
Interest is the cost of borrowing money from a lender. Understanding how this rate is structured is an important part of the borrowing process because it determines both your monthly payment and the total cost of the loan.
There are 2 types of interest rate structures available for personal loans:
Fixed-rate personal loans
A fixed-rate personal loan features an interest rate that remains the same throughout the entire life of the loan. This means your monthly payment won’t change, which may make it easier to budget for.
Many borrowers prefer fixed-rate loans because they offer more stability. You know exactly how much you need to pay each month. For example, if you take out a 36-month fixed-rate loan for home improvements, your payment in month 1 will be identical to your payment in month 36.
Variable-rate personal loans
A variable-rate personal loan has an interest rate that can fluctuate over time based on broader market conditions. These loans might start with a lower initial interest rate compared to fixed-rate options, which can be appealing for some. However, as economic conditions shift, your interest rate and monthly payment may change.
Variable-rate structures can introduce uncertainty into your monthly budget. And, if market rates rise significantly, it could increase your monthly payment and make the loan more expensive over time.
Secured vs. unsecured personal loans
Personal loans can either be secured with collateral or unsecured. Collateral is an asset of value that you pledge to the lender to guarantee the loan.
Secured personal loans
A secured personal loan requires you to pledge an asset to back the loan. Common examples of collateral include a vehicle, a savings account or a CD. Because the loan is backed by a valuable asset, the lender faces less risk. This reduced risk means lenders might offer a lower interest rate or a higher loan amount.
The primary drawback of a secured loan is the risk to your assets. If you fail to repay the loan according to the agreed terms, the lender has the right to take your collateral to recover their losses. The application process might also take longer because the lender must evaluate and verify the value of the collateral you are pledging.
Unsecured personal loans
An unsecured personal loan doesn’t require you to provide any collateral. Instead, lenders determine your eligibility and interest rate based on your creditworthiness, income and financial history. Because there is no collateral backing the loan, lenders take on more risk, meaning interest rates may be higher, or you may not be able to borrow as much money.
For veterans and military families, unsecured loans may provide a straightforward way to obtain funding for expenses like home improvements, relocation costs or nearly any other kind of use. You don’t have to worry about putting your vehicle or savings account at risk. Approval and funding times can also be relatively fast since the lender does not need to appraise or verify an asset.
Debt consolidation loans for veterans
Debt consolidation involves taking out a new loan to pay off multiple existing debts. If you’re juggling several high-interest credit card balances or loans, a debt consolidation loan can simplify your financial life by combining those balances into a single, and sometimes lower, monthly payment.
For many borrowers, debt consolidation offers a clear path toward managing debt more effectively. If the new personal loan has a lower interest rate and shorter term than your existing debts, you might save a significant amount of money on borrowing costs over time. Debt consolidation also reduces the stress of tracking multiple due dates and payment amounts. And depending on how long your loan term lasts, your monthly payments may also be lower than what you’re currently paying.
Veterans struggling with credit card debt might consider consolidating it with a fixed-rate personal loan to lock in a single monthly payment. Having predictable payments and a definitive timeline for when the balance will be entirely paid off may help you tackle your debt and put yourself on more stable financial footing.
Veteran-specific loan options
When researching your options, you might encounter advertisements for VA personal loans. It’s important to know that the Department of Veterans Affairs does not issue or guarantee personal loans. The VA backs home loans and offers certain loans against life insurance policies, but there is no official VA program for personal loans.
Some lenders may use “VA” or “veteran” terminology to market to military families. In other cases, lenders might offer products that cater specifically to veterans.
There are also certain banks and credit unions that specifically work with military families, and may only offer their services to armed service members, veterans and their families.
When considering any loan offers it’s important to carefully review the terms. Check the annual percentage rate (APR), which is the total yearly cost of the loan, and read the fine print to identify any additional costs like application fees or origination fees. Regardless of the type of financial institution, when considering personal loan options it’s beneficial to explore various banks and lenders to find a loan that best fits your financial needs.
To help you narrow down your options, check to see if your lender offers pre-qualification, which lets you see rates and terms without impacting your credit.
Choosing the right personal loan as a veteran
Selecting a personal loan as a veteran requires a careful assessment of your financial situation and borrowing needs. Before applying, it’s helpful to review your credit history and calculate the exact amount you need to borrow to avoid taking on unnecessary debt. Comparing offers from different lenders can also help you find a loan with favorable terms that align with your financial goals.
This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
