Personal loans let borrowers take out money for a variety of purposes, like restocking their emergency fund, refinancing high-interest debt, or even making a big purchase. These loans are flexible, offer quick funds, are available online, and don't necessarily require borrowers to provide collateral. 

But before getting a personal loan, borrowers should understand some basic details about them so that they can have a good repayment plan in place and avoid making any financial mistakes. Here are four important things borrowers should know about personal loans before they decide to take one out.

1. They're available in store and online

Personal loans are available in person at bank and lender branches, but they're also available online through banks, lenders, and P2P marketplaces. This means that borrowers have the option to apply and get funding online from the comfort of their homes.

People who prefer personalized help and working face-to-face with a lender should apply in person. On the other hand, borrowers who want a quick and convenient experience should find an online lender.

2. There are several types 

There are many types of personal loans, including: 

Installment loans

Installment loans let a borrower take out a lump sum of cash at a specified interest rate and pay it back in monthly payments of principal and interest. These payments are fixed, making them easy to budget for. Borrowers often use installment loans for refinancing or large purchases.

Cash advances

Cash advances give borrowers a few hundred dollars to cover expenses before they receive their next paycheck. These loans tend to last two to four weeks, and many lenders offering them have more lenient credit score requirements. 

The borrowers will repay the cash advance in full plus interest when the loan comes due. They can sometimes roll over the loan for another two to four weeks by paying an additional fee. Borrowers with poor credit who need cash fast often rely on cash advances.

Lines of credit

Lines of credit let borrowers borrow as much cash as they need up to their credit limit, then pay it back either all at once or over time, at their leisure. With these loans, only the funds withdrawn accumulate interest.

Many borrowers use lines of credit as an emergency fund or to fund a project or expense with unpredictable costs, such as home renovations.

3. They can affect credit score

Personal loans can positively and negatively affect a borrower's credit score. When the borrower applies, the lender may perform a hard inquiry to check their credit. This slightly damages the borrower's credit score, but wears off and falls off their credit report after two years.

Personal loans can also have a positive impact on borrowers' credit scores. A borrower can use a personal loan to boost their score by consistently making on-time monthly payments. 

The bottom line

Personal loans are widely available nowadays. From cash advances to installment loans and lines of credit, there are several types available both online and at physical store locations. Plus, they can be great financial tools, allowing borrowers to raise their credit score and accelerate their progress towards financial goals.That said, borrowers should shop around and research lenders and loan types before making a decision. Doing so will help them get a loan that fits their budget and needs.

Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.

Contact: carolina.darbellesv@iquanti.com