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Personal loans have become a more popular lending option than ever before. Combine that fact with the recent ups and downs of the economy, and you might find yourself wondering if a personal loan is right for you. If you’re new to personal loans, read on for answers to some frequently asked questions.
You can use a personal loan for just about anything. That means the funds can be used to pay off debt, finance a wedding, fund a home renovation – you name it! Just be aware that your lender will usually ask how you plan to spend the money. This information may be taken into consideration when approving or denying your loan.
When a loan is secured, that means it’s backed by collateral. This is something the lender can take ownership of if you default on your loan. Savings Secured Loans at DCU use your savings account or certificate account as collateral.
Unsecured loans have no collateral, so lenders approve them based on your financial history. Compared to secured loans, unsecured loans generally have higher interest rates. This is because without collateral, the lender is taking on more risk if you happen to default on your loan.
Essentially, debt consolidation is when you roll several debts into one—often by paying them off with a personal loan or transferring the debt to a credit card. Some people choose to consolidate their debt because they find it convenient to have a single monthly payment instead of paying multiple loans. Debt consolidation can also help save on interest over time if the new interest rate is lower than your existing rates. When consolidating debt, it’s important to research borrowing options to find the best fit for your financial situation.
You should weigh the differences of personal loans versus credit cards carefully when consolidating debt. A credit card will usually have a much higher rate than a personal loan. However, some credit cards offer promotional rates on balance transfers for a limited period of time. It’s important to consider all terms associated with each borrowing option, including promotional conditions.
When you’re preapproved for a loan, it means you’ve unofficially been offered the loan contingent on your qualification. At this point, the lender only knows that you meet the basic requirements and can give you an estimate of the loan amount and rate you’d qualify to receive. Current DCU members can see if they’re preapproved for a Personal Loan by visiting Loan Suite in Online and Mobile Banking. You do not need to be preapproved to apply for a Personal Loan.
Yes. For most types of personal loans, when you apply, your credit score will probably be impacted. That’s because lenders usually perform a hard credit check on your credit history to make sure you’re a trustworthy borrower. This causes your credit score to take a temporary hit.
However, there is another type of personal loan, the Credit Builder Loan. This loan is specifically designed to build or rebuild your credit history as you make payments. At DCU, funds are places into a Member Described savings account, on hold, earning dividends for the term of the loan. Once the loan has been paid off, the funds and associated dividends are released for you to use. And you've just built a savings!
There are different factors that can influence your interest rate: including your credit history, the length of the loan and the type of the loan. Generally, if your credit is better and your term is shorter, your rate will be lower. That’s because good credit and a short term generally tell the lender that you’re at lower risk of defaulting on the loan.
Once approved, the time it takes to receive money from a personal loan can vary between lenders. Members could receive their personal loan funds from DCU as soon as the same business day.
A loan origination fee is a fee that may be charged by some lenders to cover the cost of processing your loan application. This could range between 1% and 8% of the loan amount depending on certain factors. At DCU, there is no loan origination fee for personal loans.
The time you have to make payments depends on your loan term. Terms can usually range from 12 to 60 months. You’ll be asked to make fixed payments each month throughout the life of the loan. At DCU, there is no prepayment penalty or fee. Calculate how long it will take to pay off your loan with our online calculator.
This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional.