Since very few have an endless cash supply, most of us at some point would need a personal loan from a bank or credit union for making larger purchases.

There’s a multitude of reasons for a personal loan, starting with unexpected expenses, major events, education, large purchases, debt consolidation and more.

Choosing between a secured and unsecured loan is just the beginning, and depending on the amount you want to borrow, along with your credit history, will have everything to do with whether a lender might be willing to lend to you, along with the interest and fees involved.

You’ll also need to look at the repayment period. Where a longer repayment terms make for lower monthly payment, you will also have to pay more in interest.

Does credit score matter while borrowing?

Depending on the amount you are considering to borrow, sometimes it can make sense to plan ahead and try to improve your credit rating so that you might receive better interest rates when looking to borrow. Over the term of the loan, depending on the amount borrowed, a few points lower in interest rates can mean saving thousands over the term of the loan.

What is a Personal Loan?

Technically, a personal loan is a type of installment loan, where the borrower agrees to pay back the money following what is usually a monthly schedule. These monthly installment payments, which often ranges from 12 to 84 months for a repayment period, can also help improve your credit rating for in the future as long as you make your payments on time. Which can in turn provide you with an even better interest rate should you be looking at future loans.

Depending on the lender, and your credit rating/history, the interest rates and other fees are to be scrutinized. This is directly related to the cost of borrowing. Interest rates typically range from around 5% to 36%, and origination fees often range from 1 to 6% of the loan amount. You should also know that some lenders tend to charge what is referred to as prepayment penalties. If you were able to pay off your loan early, this early repayment means that a lender would miss out on the potential interest that they could have otherwise earned. Make sure you know the terms of your loan.

Applying for a personal loan can provide a wealth of opportunities, but it’s important that you can manage and are comfortable with the level of debt you might be putting yourself into.