Many different loans exist for different purposes, such as student loans for education or a mortgage for a new home. Personal loans can offer a flexible way to manage current expenses or to finance personal needs such as medical expenses, emergencies, or auto repairs. These loans are often used by people who experience unexpected expenses and suddenly need extra cash. Others use personal loans as an alternative to a credit card for major purchases as the interest rates can be lower than using a credit card. Standard personal loans are not revolving, and each month’s payment is normally a fixed amount.
For doctors, personal loans can help save thousands in interest costs especially while still in training. Additionally, they can be utilized to start a new practice or join an existing practice as well as finance expensive equipment.
A personal loan is a predetermined amount of money borrowed from a lender with an established timeframe for repayment and fixed monthly payments. Unlike other loans, you don’t need collateral to secure the loan. Rather, the lenders of personal loans assess your ability to repay and determine your fixed interest rate through examination of your income and credit background. Remember, lenders will assign higher interest rates to those with a poor credit history.
Most often, personal loans are used to consolidate debt. This works by your personal loan repaying existing debts with the proceeds of your new loan. Combining multiple credit cards, for example. Furthermore, you can arrange your loan term so that your new monthly payment is lower than your previously combined payments. Another benefit to a personal loan is that it can improve your credit score when payments are made on time.
For medical students, a personal loan could be an option to refinance your current student loans into a new loan or consolidate your multiple loans into a single loan. However, note that you will lose the tax deduction on student loan interest if you use a personal loan to refinance. You should only consider using a personal loan if you can lower your interest rate or your monthly payment. Be aware that many lenders have maximum loan amounts.
Over the years, personal loans for consumers have become increasingly popular with these loans now being offered by banks, credit unions and online lenders. Fortunately, personal loans are relatively easy to obtain and there is little paperwork required and can be done entirely online. Many times these loans can be approved and funded quickly. To obtain one, you must be 18 years or older, have a government ID, a Social Security number, a bank account, a minimum level of income, and live in the state that the lender does business.
As a borrower, you should beware of lenders who advance loan fees, guarantee financing, insist on loan insurance, pre-compute interest, and have pre-payment penalties, hidden fees, and large origination fees. Some mistakes to avoid are not checking your credit score before applying, not shopping around, or getting pre-qualified, only focusing on monthly payments, not reading the contract, making late payments, or not asking how interest is calculated. Personal loans should be avoided if you will have trouble with monthly payments, are about to purchase a house, or are borrowing for something you do not need.
The flexibility and benefits provided by personal loans can make life easier for many people. It is important to understand the different terms of these loans in order to best use them to your advantage. To find out if a personal loan is right for you, consult your financial advisor.
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