Many people with financial emergencies consider getting a personal loan to cover their expenses. But what is the meaning of “personal loan,” and is getting one right for you? Find the answer to these and other questions in our glossary.
What’s a personal loan?
Think of a personal loan as cash you can borrow from banks or online sites, not just for big purchases like cars or houses, but for anything—maybe a trip, doctor’s bills, fixing up a home, or consolidating debts. You and the lender agree on an amount, and then you pay it back over time with a bit extra (that’s the interest).
Personal loans can provide a quick cash influx when you need it most, but remember to use it wisely, like any borrowed money!
Why would someone need a personal loan?
We’ve talked about the meaning of a personal loan. Now, why would someone go for it?
There are many reasons! They may have big plans, like a dream vacation or a home makeover. Or perhaps life threw a curveball, like unexpected medical bills or car repairs. Some folks even use them to consolidate multiple debts into one easier-to-handle payment.
A personal loan is a versatile financial instrument that can serve many purposes for people who need extra cash.
How does a personal loan work?
The personal loan meaning is pretty straightforward: it’s money you borrow for personal use.
Here’s how it works: you decide how much you need and ask a lender, like Power Finance Texas, to lend it to you.
Before deciding whether to approve you for a loan, a lender may look at factors like your credit score and what you earn. After you receive your money, you’ll likely need to pay it back in installments. Remember that there’s interest involved, which is the cost of borrowing the money. Each payment goes toward the principal (the amount you borrowed) and some interest.
If you take out a personal loan with Power Finance Texas, we’ll send the cash directly to your bank account in as little as one business day.
Is it good or bad to get a personal loan?
Whether getting a personal loan is good or bad depends on your situation. On the bright side, a personal loan can help in emergencies, consolidate debt, or fund significant expenses. A loan with a reasonable interest rate might even save you money in the long run.
However, if you borrow more than you can repay or get stuck with high interest, it can lead to financial troubles. Moreover, there’s always the risk of falling into debt if not managed wisely. So, it’s essential to weigh the pros and cons, understand the terms, and borrow responsibly.
Power Finance Texas has transparent terms that are easy for our customers to understand. You may need more clarification about something in your loan agreement. If so, ask one of our friendly customer care representatives.
Is a personal loan bad for your credit?
Before approving your loan, your lender may run a “hard inquiry” to check your full credit report. The inquiry will cause your credit score to dip slightly—usually not more than 10 points. However, if you’re making your loan payments and sending them in on time, it can give your credit a significant boost relatively quickly!
Conversely, if you fail to make your payments on time or not at all, your credit will likely suffer. In general, the loan is a good decision if you need cash, but you must make timely payments to prevent a negative impact on your credit score.
What’s the risk of a personal loan?
While personal loans can be a life-saver in a financial crisis, they’re not without risks. First, if you don’t pay it back on time, it’s a fast track to a credit score nosedive. And once your score goes down, borrowing in the future will be more challenging, and your interest rates will be higher.
Moreover, some loans come with sneaky fees or penalties, especially if you pay off early. If you’re considering paying off the loan early, examine your loan agreement carefully or contact your lender to ensure you won’t incur extra charges.
Power Finance Texas offers reasonable interest rates, and we don’t charge our customers a penalty for repaying the loan early.
How much does a personal loan give you?
Personal loans can be like a financial wild card—the amount you can borrow varies quite a bit. Some lenders might offer a modest few hundred dollars while others offer several thousand.
How much you can get hinges on a few factors: your credit score, income, and the lender’s guidelines. So, while one person might receive an amount covering the cost of an extensive home renovation, someone else might get a smaller amount, enough for a weekend getaway. Each lender is different, and so is each borrower’s situation.
At Power Finance Texas, we lend up to $1250.
What happens if you get a loan and don’t use it?
Even if you don’t use your personal loan, you’ll still need to pay it back—with interest! Think of it like a gym membership; whether you work out or not, you still get the bill.
Over time, the loan accrues interest, and you’re essentially paying more for money you’re not using. If you have untouched loan money, pay it back early to avoid unnecessary costs!
Remember the meaning of a personal loan? It’s money you borrow, usually for things you need. If you don’t need the money, it’s best not to borrow it.
Do personal loans raise credit scores?
Personal loans can impact your credit score in various ways. However, when managed correctly, they can help boost your score.
Here’s how: Make consistent on-time payments on your loan. Your consistency shows that you’re reliable with debt, and that’s reflected in your credit report. Over time, you’ll see a steady increase in your credit score, making you more creditworthy.
What do you need to get a personal loan?
To get a personal loan, lenders typically require a few key things—first, your credit score, which gives them a peek into how you’ve managed debt before. Then, there’s proof of income, so they know you have the means to pay back the loan. Identification, like a driver’s license or passport, is also required to confirm you’re really you.
Some lenders might ask for employment verification or recent bank statements to get a fuller picture of your financial health. Also, having a solid reason for the loan can help your case.
Here’s what you need to apply for a Loan with Power Finance Texas:
- A valid Texas driver’s license
- A recent bank statement
- Recent paycheck information
- An active home or mobile phone number
Now that you know the meaning of personal loans, how they work, and how they can improve your credit, don’t hesitate to turn to Power Finance Texas for your loan needs. We’re here to help.