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What to know about getting a personal loan

FYI Finance Presented by JPMorgan Chase

Sometimes big expenses in life are beyond the reach of a savings account, no matter how frugal we are. Major home renovations, a dream wedding, or just covering emergency expenses can sometimes go beyond what we are able to save.

In these cases, it may be possible to obtain a personal loan. Banks or credit unions offer these loans for personal expenses like those listed above, as well as things like credit card debt consolidation, funeral expenses, or other major purchases. Personal loans are different from other loans you may have, such as a mortgage or student loan, because these funds are for a specific purchase. Personal loans can be used for a wide variety of things and can be useful tools, but there are some things to know before looking for one.

What are the types of personal loans?

Personal loans can be secured or unsecured. Secured loans are backed by some sort of collateral. You can use an asset such as your home, vehicle, or savings account as collateral. Unsecured loans do not require collateral and therefore banks consider them riskier. It is up to the financial institution whether or not to require a guarantee. Since lenders consider unsecured loans to be higher risk, they usually carry a higher interest rate.

Consider fees and interest rates

Personal loans generally do not require an application or prepayment fee, but some come with an origination fee of between 1% and 10% of your loan amount. In some cases, you can find a lender that doesn’t charge this fee, often based on your credit score, but that’s not the only thing to consider when deciding on a loan. You should also look at the annual percentage rates, which include the interest rate and other fees, to determine the true cost of the loan.

Fund Calendar

For some things, like a big wedding or a home renovation, you can probably be patient when you get your loan money. But for other expenses, like medical or funeral bills or financing an essential home repair like a roof or water heater problem, you’ll probably want the cash as soon as you can get it. If so, look for a lender who can offer you a fast turnaround from application to funding, and make sure you have all the necessary documents ready, such as pay stubs, proof of address, and tax documents, to make the process as easy as possible. timely as possible.

Flexibility and discounts

Interest rates are primarily based on factors such as your credit score, debt-to-equity ratio, and other long-standing financial metrics. But some financial institutions offer rate discounts of 0.25 or 0.5 percentage points for things like setting up automatic payments or if you have multiple accounts with one institution. It may not seem like much, but these discounts can add up over the life of a loan and are worth asking for. Also, ask your lender about potential payment flexibility. Some banks will allow you to defer a payment after a certain number of consecutive one-time payments. It’s always a good idea to ask your lender what will happen if the unexpected happens, such as job loss, injury or death, so you can be prepared if the worst happens.

Ultimately, you can use personal loans to find the funds needed for those things in life that are either unexpected or beyond the reach of our savings accounts. Do your research and compare prices to find a loan that’s right for you.

FYI Finance is presented by JPMorgan Chase. JPMorgan Chase is pledging $30 billion over the next five years to tackle some of the key drivers of the racial wealth divide.