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How do Personal Loans work? The Basics.

How do Personal Loans work? There are a lot of questions out there surrounding personal loans. Personal loans, sometimes called signature or unsecured loans, are often misunderstood. Typically, a personal loan offers fixed interest rates, fixed terms, and fixed payments. These loans are budget-friendly and work great when you need money quickly. Personal loans generally offer low-interest rates and they are usually smaller loans than other types of loans. If you’re thinking about getting a personal loan, here are a few things to know to get you started…


Personal loans are usually unsecured loans, meaning that no collateral is needed. With secured loans like an auto or home loan, collateral (like the home or car) is needed to secure the loan. Applying for a loan is simple, but sometimes requires a credit report dependent on what type of personal loan you need. Typically, the financial institution like a bank or credit union will want to ensure that you’re a good candidate for the loan and that you’re likely to pay the loan back in full.


Personal loans come with a variety of terms and rates depending on your personal situation. Terms for a personal loan can range. Some terms are 1 year and some can go up to 7 years. The amount you can borrow can also range with a loan as low as $200 to $30,000. The loan amount will depend on how much you apply for and how much you are approved for. Rates adjust with the market and economy. A good personal loan rate (or referred to as APR- Annual Percentage Rate) depends on what the national average currently is and you ideally want a loan that is lower than the national average.


You want to make sure that the personal loan that you get does not have a prepayment penalty. Without a prepayment penalty, you will be able to pay off your loan early without an extra fee. Additionally, you want to make sure that you are monthly payments include paying for interest plus your principle. Loans that require you to pay for interest first and then the principle.


Personal loans could be used for many things. For example, members borrow for debt consolidation, emergency expenses, home renovations, specialized schooling, a vacation, to pay off taxes, to pay for a big life event like a graduation or wedding, or for large cost items like a new computer or entertainment system. Other loans such as student loans or mortgages are for specific purposes. You must abide by those terms of use. With a personal loan, you have more freedom to use the loan for a variety of purposes.

A personal loan works great especially when you need money quickly, have an emergency, or want to consolidate debt. Since interest rates are usually lower than a credit card or payday loan, a personal loan is a smarter option. It’s important to get your credit score in the best shape, compare the different repayment terms, and adjust your budget so you can make on-time payments monthly. You can get a free credit report yearly from the Annual Credit Report website or by calling 1-877-322-8228 where you will go through a simple verification process over the phone.


If you need to borrow money, a personal loan could likely help you. If you’re still not sure whether a loan is a right option for you, call us at 808.73.PHFCU (737.4328) or visit one of our locations on Oahu (Waipio, Waianae, Ewa Beach, Honolulu,  Airport,  and Pearl Harbor). Our team is ready to look at your financial situation and recommend the best option for you.

If you are ready, let’s get started: Apply