Personal Loans: Regaining Popularity
Oct 13th, 2010 @ 4:01 PM by Amber Nelson
Up until last year, personal loans were all but dead. Banks just weren’t promoting them when money was so easy to come by with home refinances, credit cards, or small business loans. Now that most of those sources have dried up for many people, personal loans are becoming an important source of funds for consumers.
According to CBS’ MoneyWatch, many of the big banks are now advertising the personal loan again. Wells Fargo is offering $3,000 to $100,000 with a loan term of up to five years, while Citibank allows loans from $300 to $7,500. Discover Financial and CapitalOne are also actively promoting these loans.
The interest rate depends on your credit score and in general the rate will be roughly the same as your credit card interest rate. So why not just use your credit card if the rate isn’t any better? Well, some people with poor credit have had their credit limits slashed during this time of economic hardship while others have even had their accounts canceled by the credit card companies. These personal loans are typically used for emergency needs or other big, important purchases and they can offer a greater sum of money than many credit card limits.
Plus, if you get behind on a personal loan, the bank can’t come and take your house, like with a second mortgage. (Although you can still get sent to collections.) And even though the interest rate could be high, you are put on a definite schedule to pay it off. You can’t just pay a “minimum balance.” You have to pay a set amount each month, but the upshot is that there will be no extra interest accruing and as long as you stay current, it will be paid off in no longer than five years. It’s a simple, direct loan and it may gain some momentum soon if other credit markets don’t thaw out quickly.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.