The world of finance can be a confusing place, especially when it comes to personal loans. There are terms, abbreviations, processes, and other questions that make looking for a loan complicated.
In addition to the personal loan information available in our frequently asked questions (FAQs), we’ve put together a list of the top five personal loan FAQs to help you better understand both the loan process as well as the specialty language used when dealing with personal finance and lending.
What is the difference between an interest rate and an annual percentage rate of charge (APR)?
An interest rate is just that: the interest rate. This is the cost that a borrower pays each month on the unpaid balance of their loan. An annual percentage rate, or APR, includes the interest rate along with any additional costs that come with the loan. These costs can include finance charges and any processing fees assessed by the lender.
What sort of information is used to come up with personal loan options?
In the case of a company like AmOne, we use our free custom matching service to take your basic information and find a trusted lender in our database. With our free service, we don’t have to take in personal information like your Social Security number, your driver’s license number, or any banking or credit card information. For greater detail or additional options, AmOne will use your three credit scores to find the best personal loan option for your financial needs. Your three credit scores are used to find the best available lender with the lowest interest rate.
Do I need to have collateral to get a personal loan?
If you’re getting an unsecured personal loan, no collateral is required. You don’t have to put any of your property at risk as the loan is based solely on your credit.
Can I use my personal loan to pay down my debts?
Yes, you can. Personal loans can be used to pay off a single debt, or for other uses like emergency expenses, helping to fund a redecorating project, or even to pay for a vacation. If you have multiple debts that you’d like to pay down, there is another form of personal loan that might work better for you: a debt consolidation loan. With a debt consolidation loan, you can use the loan amount to pay off multiple debts, leaving you with one monthly payment.
What is the difference between a loan and a line of credit?
With a loan, you borrow a set amount of money for an agreed upon time frame. In order to repay the loan, you make payments back to the lender until you’ve paid the loan in full. A line of credit is much like a credit card account in that it is open-ended and is revolving credit that has a set credit limit. The difference between a line of credit and a credit card is that you access the money directly with a line of credit. Also, the payment on a line of credit is based on how much of the credit line you’ve used.