Personal Loans 101

If you need some cash to fund a project, a personal loan might serve your needs. But how do they work, and what are the pros and cons?

How they work

A lender looks at your credit profile to assess your ability to pay back a loan, and how much is feasible for you to repay over a certain period of time. If they determine that you meet their credit criteria, they will advance you the full amount at once. You’ll then pay it back in monthly installments, along with interest and any mandatory fees. Most personal loans have a fixed interest rate and a set repayment period (typically 1 to 7 years).

Secured vs. Unsecured

Most personal loans are unsecured, meaning they don’t require collateral. Secured loans require collateral, like a vehicle or real estate, but they typically offer lower interest rates.

Costs & Fees

Many lenders charge an upfront fee of 1% to 10% for processing the loan. This origination fee may be deducted from the total loan amount or added to the balance.

Some lenders charge a fee if you pay the loan off ahead of schedule. Be sure to ask about any prepayment penalties before paying off a loan early.

Pros & Cons

Personal loans can be attractive because their fixed interest rates and monthly payments make budgeting easy, they often feature lower interest rates than credit cards, and they can help build your credit profile.

On the other hand, a personal loan locks you into a strict monthly payment. And if your credit isn’t stellar, it may include a high interest rate.

Next Steps

If you need some cash and aren’t sure if a personal loan is the best choice for you, reach out to your local branch. A City banker will listen to your needs and recommend the product to best help you achieve your goals.