Personal Loan vs Consolidation Loan: What Is the Difference?
There are different types of loans such as business, home equity, car, and student loans. Each of them is taken out for a specific purpose. But if you’re looking for a loan type that you can use for whatever purpose, then what you need is a personal loan.
Yes, a personal loan can be used for just about anything. But one of the common reasons why people take out personal loans is to pay off debt. And that is where the concept of debt consolidation loans comes in.
Comparing Personal Loans and Debt Consolidation Loans
Debt consolidation loans are used to settle multiple high-interest obligations. Technically, a debt consolidation loan is a way you can utilize your personal loan. If you want to understand them further, here are the things you should know.
Understanding Personal Loans
A personal loan is a type of installment loan that you can use to cover several expenses. Whether you are funding your wedding, home renovations, or medical bills, a personal loan is a good option because there are no restrictions. In this loan type, you’ll get a lump sum which you are required to pay with interest over time.
Personal loan amounts can range from $1,000 but they can go as high as $20,000, depending on your need and credit history.
Understanding Debt Consolidation Loans
The idea behind debt consolidation is settling different monthly payments using the lump sum amount you collected from the personal loan. In that case, you are eliminating debts with high interest rates and then replacing them with a personal loan, which would typically bear lower rates and fees.
How Does a Personal Loan Work?
The first step to get a personal loan is to apply to a lender, be it an online lender, credit union, or bank. The institution or lender will review your application and evaluate some of your important financial information. Once qualified, the lender will provide you the terms of the loan. The terms include loan period, interest, principal amount, and other matters relevant to the loan.
When you accept the terms, you will receive the sum of money stipulated. And since that is a personal loan, you can choose where or how you will use it.
When Should You Consider Getting a Personal Loan?
Even though personal loans are a great source of funding for various purposes, you should still make sure that you’re getting them for practical reasons. Ideally, this loan type is best for consolidating high-interest debt or funding your home improvement project.
Why Consider a Debt Consolidation Loan?
If you have multiple monthly payments with high interest charges, you must start considering debt consolidation. Aside from the convenience that it offers, rolling several debts into a single loan will allow you to save a considerable amount of money on interest.
When dealing with emergencies and other expenses, personal loans can be a lifesaver. However, banks and credit institutions may have stringent policies on who they will qualify for the loan. This means that your credit history is a significant factor in whether your application will be accepted or denied.
Here at Hometown Finance, we give equal opportunities to our clients. We’re one of the few institutions that offer personal loans for bad credit in Murfreesboro, TN. We value your financial goals as much as you do! For small loans, personal loans, or installment loans in Murfreesboro, TN, feel free to contact us today.