A personal loan is a type of installment loan that offers flexibility, convenience and simplicity over a preset repayment period.
There are a number of situations when personal loans can be helpful. However, you'll need to understand how they work as well as the process of obtaining one before you can use a personal loan to address your financial situation.
How do personal loans work?
Personal loans are typically unsecured, which means they are not backed by collateral like a home or car. This makes them different from secured loans, such as mortgages or auto loans, which require collateral.
Personal loans are also repaid in monthly installments, and the amount you pay each month is determined by the loan terms your lender decides upon accepting your application. Your loan terms will also include information about your interest rate and the total amount you'll need to repay.
While some personal loans can have a variable-rate, meaning their interest rates can change over time, the interest rates on most loans are usually fixed, which means they will not change over the life of the loan.
How do you get a personal loan?
Personal loans are available from a variety of sources, including banks, credit unions, and online lenders.
In order to get a personal loan, you'll first need to apply with a lender. This can be done online, over the phone, or in person. The lender will then review your credit history and financial situation to determine if you're eligible for a loan and, if so, how much they're willing to lend you.
If you're approved for a personal loan, you'll be given a repayment schedule that outlines how much you'll need to pay each month, as well as the loan's interest rate and term.
Personal loans typically have terms of one to five years, and you'll be responsible for making fixed monthly payments until the loan and interest are paid off in full.
Types of personal loans
There are a few different types of personal loans available. The loan you choose will affect the interest you owe, how you obtain the loan, and what your terms are for repaying the loan.
Fixed rate loans vs. Variable rate loans
Personal loans can have either a fixed or variable interest rate. A fixed interest rate means that the interest rate will stay the same over the life of the loan. A variable interest rate means that the interest rate may change over time.
Unsecured loan vs. Secured loan
Many personal loans are unsecured, which means they are not backed by collateral. An unsecured loan is riskier for the lender, so you may have to pay a higher interest rate. A secured loan is backed by collateral, such as a home or car.
What are the benefits of a personal loan?
There are a few key benefits of personal loans:
-Personal loans are very flexible lending products. This means they can be used for almost any purpose besides certain educational expenses like school tuition.
-The interest rate is usually fixed, which means it will not change over the life of the loan.
-You’ll receive the loan amount in a single deposit or by check, so if you need the full amount of the loan right now, a personal loan can help you.
What can personal loans be used for?
Personal loans can be used in a number of ways, making them flexible and convenient options for different financial situations, including:
If you have multiple debts with high interest rates, you may be able to save money by consolidating your debt with a personal loan. This involves taking out one loan to pay off multiple debts. By consolidating your debt into one loan with a lower interest rate, you can save money on interest and pay off your debt faster.
A personal loan can get you started on paying for repairs or renovations to your home, even if you don't have the equity to take out a home equity loan or line of credit.
When it comes to unexpected medical expenses, a personal loan can help you cover the cost. In cases where you don't have health insurance or if your expenses are not covered by insurance, a personal loan can be particularly useful.
If you're planning a trip and need to cover the cost of travel, lodging, and activities, a personal loan may work for you. This may come in handy if you don’t have enough credit card points or frequent flyer miles to cover the cost of your trip.
When you’re moving to a new home, a personal loan can cover those expenses. This can be helpful if you don't have enough saved up to cover the cost of hiring a professional mover.
Do you need to finance a new or used vehicle or make repairs to your existing vehicle? A personal loan may be the right move, especially if you don't have the cash on hand to pay for the vehicle outright or cover the cost of repairs.
During the wedding planning process, expenses can add up. A personal loan can add flexibility to your budget. This can be the right choice if you don't have enough saved up to cover the entire cost of the wedding.
Refinancing an Existing loan
If you have an existing loan with a high interest rate, you may be able to save money by refinancing the loan with a personal loan. This involves taking out a new loan to pay off the existing loan. Refinancing your loan is an ideal choice if you’ve found a loan with a lower interest rate than the average APR of your current debts.
Deciding On a Personal Loan
A personal loan can be a good option if you need to finance a large purchase, consolidate debt, or give you financial flexibility in an emergency. If you're interested in obtaining a personal loan, Citi offers personal loans to both existing Citi customers and new Citi customers that meet specific eligibility criteria, including an established credit and income history along with additional factors determined by Citi. If you think you could benefit from a Citi Personal Loan, apply online today.
Disclosure: 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.