Graduating from college is not always everything it's cracked up to be. Students who recently earned a degree know too well the struggle of unemployment and the additional burden of paying off student loans. It is often second nature for students to seek loan products to tide over their finances until they can find a stable job. In these cases, a personal loan often comes to mind first.
What is a personal loan?
Millions of Americans rely on personal loans each year to cover unexpected financial obligations and pay off debt. At the onset, a personal loan sounds attractive and might be the solution college graduates are looking for; but the reality is, a personal loan may not work for everyone.
If you compare personal loan lenders, you'll typically find a range of products catering to individuals of varying credit-worthiness. Personal loans have instalment payment terms ranging from 12 to 84 months. Paying off a personal loan will automatically close it. So, if you need money in the future, you'll need to apply for a new loan.
Types of personal loans
Personal loans fall under two categories:
- Unsecured personal loan. An unsecured personal loan offered by lenders won't require the borrower to present collateral. However, the lender will base the loan application on your credit history. Those who get approved for unsecured personal loans have excellent credit scores.
- Secured personal loan. To apply for a secured personal loan, you'll need to provide collateral, like a bank account. The lender will have the right to claim funds from your bank account in case you default on your loan payments.
When applying for a personal loan, borrowers traditionally go to banks. In addition to banks, there are also non-traditional personal loan lenders with attractive rates and offers.
Personal loan uses
If you are strapped for cash and currently looking for employment, a personal loan can kick-start your finances after college. For example, a personal loan can pay off a portion of your student loans, help you move to a new city and use the money to find a place to live. Personal loans are also typically used for the following:
- Loan consolidation. If you have many credit cards with substantial balances, you can use a personal loan to pay off a few of your credit cards at a lower interest rate. It is not always good for someone looking for a job to maintain a lot of credit, and a personal loan could be the solution you are looking for.
- Finance your move. Moving to a new residence is expensive. A personal loan can pay for the deposit on a new apartment and the transportation of your personal belongings to your new home.
- Down payment for a car. It is often more convenient to look for a job if you have a car. A personal loan can help you put a down payment for a car so that you can get started on your life as an independent professional.
Like any financial commitment, deciding to apply for a personal loan online or not requires careful consideration. Always make sure that you can pay off your obligation to prevent adverse impact on your credit.