The Ultimate Guide to Personal Loans

WOOHOO! LOANS!

 Wait. No.

 Look, we get it: Loans suck. No one likes going into debt, especially if it is for a stupid reason, like needing to buy that new entertainment system or, you know...buying gas. But as much as they suck, they're needed. Like it or not, personal loans are an important part of personal finance. But...what the hell is a personal loan? And how can you get the most out of it? Here's some advice.

 The Basics of Personal Loans

Alright folks, let's tackle the big question head-on: What on earth is a personal loan?

Simply put, it's a loan for personal stuff. Clear as mud, right?

Diving deeper, a personal loan is a lump sum you borrow for discretionary purposes. Maybe you're eyeing a new gadget or dealing with a sudden medical bill (remember, don't scratch that itch and your doctor's bill won't skyrocket!).

Unlike car or mortgage loans, personal loans are for pretty much anything that doesn't involve assets like houses or vehicles. But beware, these loans can come with a hefty price tag.

Often, personal loans sport higher interest rates than their asset-backed siblings. Wondering why? Here's the catch. With no physical asset (read: actual thing) to back them up, lending institutions face higher financial risk. To balance this, they jack up the interest rates, making you shell out more over the loan's lifespan.

Yes, it sounds like a raw deal. But knowledge is power. Understanding what a personal loan entails and how to score a lower interest rate can save you from draining your wallet. So, let's navigate these financial waters together and keep that hard-earned cash in your pocket!

The Difference Between Installment Loans and Revolving Balances

They ain't the same, and you're probably familiar with installment loans and revolving balances — even if you didn't realize there was a difference.

 Installment loans are...well, duh, loans that you pay in installments. These installment payments are to be made regularly, usually once a month. Interest is calculated over the life of the loan, but the good news is that once you pay the balance off, it's over. Done. Kaput.

 Revolving balances are credit card loans. Most of us have a credit card, where you pay for a purchase on your card, then handle paying off the balance from your bank account at a later date.

 If you make full payment by the time your statement is due, you don't have to pay any interest on the card. Don't make the payment? It's interest time, and credit card interest rates are...well, massive. They're averaging 18% or so as of this moment. So, yeah, try to avoid it.

 In all seriousness, the monstrously high interest rate of credit cards is one of the reasons that a personal loan is better than credit card payments: They have much better interest rates. 

How To Get the Most out of Your Personal Loans

Personal loans suck, but they are sometimes necessary. So, how can you get the most out of them?

• Shop around. Make sure you're finding the lowest interest rate possible.
• Consider the shortest term (length of time) possible. A shorter term limits the amount of money you lose on interest payments. 
• When repaying, pay extra. This money goes to the principal (balance) of the loan, which can also reduce the amount of money you pay in interest payments. 
• Check with your bank or credit union for a loan. They often have reduced rates that can save you a fortune if you need a loan.

Things To Watch Out For When Getting a Personal Loan

Now that you know what a loan is, you must make sure you don't get absolutely screwed. This may come as a shock to you, but people suck. And because people suck, they will constantly search for ways to separate you from your hard-earned money. So, here are a few things to watch out for: 

• No-interest or delayed interest loans: Yes, this may sound great — pay off your loan interest-free! But read the fine print. If you miss a payment or fail to pay the loan back on time, you will get SLAMMED with interest that has been calculated for the life of the loan.
• Payday lenders: These people are predators, pure and simple. They aim to trap you in a cycle of perpetually paying off loans by making it easy for you to roll one loan into a higher interest rate loan. Seriously, they are illegal in many states. Avoid. AVOID. 
• Fees: Some lenders have cute little fees in the fine print. Make sure you understand the costs that will come with originating a loan, late fees, and any other fees that these guys try to sneak past you. 

Now What? Personal Loan Tips

You now know what a personal loan is, so get out there, google "personal loan," and apply for the first loan you see!

 THAT WAS A JOKE. You stop that right now!

 A personal loan can be a significant expense and set your financial future back in a big way. This is why it is so important that you SLOW DOWN and shop around. Find a loan that has the best terms for you, with the lowest interest rate, and ask for advice if you need help. Online communities — like Flik — can make a huge difference here, as they can point you toward expertise that can make sure you keep as much of YOUR money as possible. 

 At Flik, we're proud of our no bullsh*t approach to personal finance, and we're here to help. Want more information on personal loans, loan refinancing, or more? Check more of our personal finance guides today.