Everything You Need to Know About Personal Loans

​Ideally, everyone would have emergency funds saved up; unfortunately, however, life doesn't always play fair and when unexpected bills arrive many turn to personal loans as a solution. Magical Credit provides personal loans to borrowers with bad credit or low income, offering competitive interest rates and flexible terms to help you meet your financial needs. Keep in mind, however, that any expenses must be repaid with interest; so it is crucial to shop around for the most favorable rates and terms.

Getting a Personal Loan

Lenders typically consider your creditworthiness, debt-to-income ratio, and other criteria in deciding whether you qualify for a personal loan. Your borrowing limit will also depend on which lender is providing it; options include banks, credit unions, online lenders and peer-to-peer lending platforms. Secured personal loans (backed by collateral such as your car or savings account) usually carry lower interest rates than unsecured ones.
​
If you don't have collateral, an unsecured personal loan might be your only option. Before applying, shop around for the most competitive rates and fees before trying to reduce any outstanding debt balances in order to improve your debt-to-income ratio and secure a better personal loan with more favorable terms.

Interest Rates

Personal loans often involve paying interest, with current rates typically ranging from 6.99% to 36% APR. Although these rates are significantly higher than credit card rates, you can offset them by making payments on time and avoiding prepayment penalties that reduce what you owe in total.

Lenders often use your credit score and debt-to-income ratio as the foundation of their lending decisions, taking into account other outstanding debt as well. Lenders also may check employment status and annual income to ensure you can comfortably repay their loans.
​
Most personal loan lenders do not charge signup or origination fees and often provide flexible loan amounts, terms, and other features to meet borrower needs. Before considering taking out a personal loan, take the time to review both your Equifax report and free credit score in order to see how your scores might affect your ability to qualify for the best loan rate possible.

Fees

As taking out a personal loan is one of the largest financial decisions you'll make, it is vitally important that you fully understand any associated fees. Most personal loans charge an origination fee as a percentage of what is borrowed; additional charges may include prepayment penalties or late payment charges.

Lenders will typically evaluate your income and debt-to-income ratio to ensure you can afford monthly payments. Furthermore, lenders may offer more favorable terms if your payment history has been on time.
​
People use personal loans for various reasons, from covering pricey events such as weddings and vacations, to financing home improvements. Whatever the purpose, it's wise to borrow only what can comfortably be paid back; remembering that every loan comes with interest that could increase its cost significantly more than without taking out a personal loan in the first place.

Payments

Personal loans often provide more advantageous rates than credit cards and can be an ideal solution for financing major expenses (like a wedding or costly home improvement) that would otherwise be impossible to cover with cash alone. They can also help consolidate debt by lowering APRs on multiple high-interest credit card balances.
​
Interest rates and loan terms differ across lenders, so you should always compare offers in order to find the best possible deal. Some offer soft credit checks to prequalify for personal loans without negatively affecting your score and provide an idea of which terms may apply to you.

Personal loans should only be taken out if the monthly payments can comfortably fit within your budget. If in doubt, consult a financial counselor or look for ways to lower expenses before considering one. Make sure you obtain your free Equifax credit score and report regularly as lenders typically report your payment history back to all three major bureaus.