A personal loan is one in which you borrow money. While this might seem like any other loan, it is not. When you go to a bank or other lending institution, it is generally to get a loan to purchase something. Most of the time, you list what is being bought and from where, and the lender simply pays for the purchase. The money is never in your hands. These loans offer collateral to the lender with the purchase. A personal loan is when you ask for money and can then use it at your discretion. There is no collateral, so lenders tend to be a bit harsher with their requirements. Here are a few things to look for when signing for a personal loan.
Since there is generally no collateral involved, personal loans tend to have higher interest rates than purchase loans. Of course, your credit rating will be a big determining factor in the rate you are given. Discuss this with the lending officer and ask if there is anything else you could do to get a lower rate. You may be able to have the payments taken directly out of your paycheck, or out of your bank account to help keep the interest lower. You may also be able to offer some type of collateral for the loan, such as your vehicle, or perhaps a piece of jewelry or art.
Some loans will have an extra fee if you try to pay it off earlier. This is to ensure the lender collects all the interest possible on the money lent. You want to make sure that there are no prepayment penalties so you can save on the interest amount. This way, if you have extra money any month, you can put it toward the loan. Make sure you state that the extra money is to go toward the principal to keep from that amount accruing more interest.
Quite often, there will be a fee to process the loan. This is an amount that will be added to the principal when you receive the funds. Make sure you understand exactly what the fees are as they may be listed as a few different things on the loan documentation.
Consider how much the loan is for and then how much you will end up paying if you make only the minimum payment each month. You may want to go with a higher interest rate if the loan fees will cause the total interest charged and the total amount paid to be higher than what you would pay with a lower rate. Look at the whole picture to be sure you are getting the best deal possible.