Loans give people the means to make large purchases, then pay off the expense in installments over time. Common types include credit cards, student loans, home loans, business loans, and auto loans, all designed for different purposes. One common type of loan that gives you a lot of flexibility is a personal loan.

If you’re looking at options to make a major purchase or complete a long-term project, a personal loan could be a smart option.

What are the different kinds of personal loans?

Personal loans can be either secured or unsecured. Secured personal loans are backed by collateral, such as cash in a savings account or a personal asset.

Unsecured loans don’t have that safety net, which typically makes them harder to approve than secured loans. This means unsecured loans are generally reserved for borrowers with good credit.

Beyond the secured/unsecured divide, different institutions may offer various types of personal loans that fall into these categories. For example, OnPoint offers four types:

• Personal loans: Borrow up to $25,000 disbursed in a lump sum and used for various purchases and unexpected expenses
• Personal lines of credit: Gain access to between $100 and $25,000 of credit whenever you need it, similar to a credit card
• Saving secured loans and lines of credit: Borrow up to the amount you have in your OnPoint savings account
• Payday Advantage loans: Borrow up to $600 or 20 percent of the amount of your most recent paycheck (whichever is less) to cover unexpected expenses that come up before payday

Whether you need a lump sum of cash all at once or simply access to a line of credit to use over a period of time if required, OnPoint has different options to fit your situation.

*All OnPoint loans are subject to credit terms and approval

How long do you have to repay a personal loan?

Personal loan terms depend on the lender and borrower but generally range from 12 to 60 months. Longer terms mean your monthly payments will be lower, though you’ll wind up paying more in interest over time. Shorter terms are the opposite; you’ll save on interest, but you’ll owe more each month.

It’s important to be aware of the specific terms and conditions of the loan you choose. OnPoint’s Payday Advantage Loan is due in two months in two equal payments.

With OnPoint’s Personal Lines of Credit and Saving Secured Lines of Credit, this will vary depending on when and how much you draw from the line of credit, with estimated monthly minimum payments based on 2% of the borrowed balance or $25, whichever is greater. You should discuss repayment terms with your loan officer when applying.

How much can you borrow with a personal loan?

The amount you can borrow depends on the lender, your credit score and other factors. Typically, personal loans are for amounts between $1,000 and $50,000, although some people borrow amounts outside this range.

OnPoint’s Personal Loans and Lines of Credit have a limit of $25,000. The Saving Secured Loans and Lines of Credit have a limit based on the amount deposited in your OnPoint savings account. And a Payday Advantage Loan has a limit of $600.

How are personal loans used?

There are few restrictions on how to use your personal loan. Borrowers can generally apply this money to whatever expenses they have. A few of the most common uses for personal loans include:

Debt management

Personal loans can be used to pay off credit cards or various other debts. The advantage to this strategy could be to consolidate multiple payment obligations into one monthly bill, to get a lower interest rate or to receive more favorable terms on your debt. As many personal loans have a fixed rate, that can make it easier to budget for and pay off your debt quickly, especially if you are paying off debt from a variable rate loan such as a credit card.

Weddings

The average cost of a wedding in Oregon in 2022 was $19,000, with Washington weddings averaging $23,000, making them some of the more affordable weddings in the United States according to The Knot. Although weddings in Oregon and Washington are relatively inexpensive compared to New Jersey’s average of $51,000, a personal loan may still make it easier to pay for the occasion.

Funerals

The average cost of a funeral is more than $7,800, according to the National Funeral Directors Association. Unfortunately, not everyone plans for this often unexpected event. A personal loan can help people make the necessary arrangements.

Moving

Whether moving across town or to another state, moving can get hectic and expensive. Bulky or delicate items, such as pianos, increase the cost even more. Many people work with professional moving companies, and the cost of moving trucks, packing supplies and gas can all add up quickly.

Medical expenses

An unexpected injury or illness can be expensive. Though health insurance may help reduce expenses, many people still struggle with costs associated with medical problems.

Home improvement

Many home improvement projects can cost several thousand dollars or more. Personal loans are one option to help homeowners pay off a remodeling project. However, given the expenses involved, many people prefer to use home equity for such a project, when possible.

How do you pay off a personal loan?

What will you pay each month?

Your monthly minimum payment will depend on the loan amount, interest rate and term length.

Someone with a $5,000 loan, 60-month term and an interest rate of 14 percent (about the average for consumers with credit scores between 680 and 719) will have monthly payments of $116. Over the five years of the loan, this person will pay $1,980 in interest. You can use loan calculators to help you determine potential monthly payment amounts.

Once you know how much your monthly payments will be, factor them into your monthly budget. Specifically accounting for this expense will help you plan accordingly.

Should you pay off the loan early?

Some lenders may charge a fee for pre-payments—OnPoint does not. Find out if your lender does this. If you can make larger or extra payments without a penalty, you will be able to pay off the loan early and reduce the amount of interest you’ll pay.

Should you set up automatic payments?

How you set up your monthly payments may depend on your personal preferences and your lender.

You might prefer to make the payments manually each month to keep track of them and ensure control. However, if you set up automatic payments, you will help ensure you’ll never miss a due date and incur late fees—always assuming, of course, that you maintain sufficient funds in your accounts on the payment date.

Why should you get a personal loan?

Personal loans can be a smart solution when you’re making a large purchase or looking to gain control over your debt.

If you’re taking out a personal loan to manage debt, make sure you’re getting a lower interest rate and/or better terms than you have on the current debt you’re paying off.

If your personal loan will help you make a large purchase or cover expenses for a big project, it’s smart to consider your pay-off plan first. Have you budgeted for the monthly payments to pay off the loan on time or early?

Personal loans can also help you improve your credit score in some cases. Credit variety is one factor in determining your score. If you don’t have another installment loan on your report, taking one on could benefit you by adding diversity to your credit mix.

Additionally, when you’re approved for a personal loan, your credit utilization ratio will change. Initially, it’ll go down because the amount of credit you have access to increases. As you spend the loan or draw on a personal line of credit, your credit utilization may go up again, depending on your total debt usage at that time.

If you are using a personal loan to pay off a higher interest rate debt, such as a credit card, it’s important to have a solid budget and spending plan in place. If you free up available credit on a credit card and then spend that credit again, you will negate the benefits of the debt consolidation.

Why shouldn’t you get a personal loan?

Though personal loans can be helpful options in some cases, they’re not always the right solution to a problem. A personal loan may not be right for your situation if:

• You can’t fit the payments into your budget, or you’re already struggling with debt.
• You’re trying to consolidate debts that you’ve already tried consolidating in the past.
• You have poor credit. Though a personal loan might help improve credit scores in some cases, this isn’t a guarantee. Plus, if you have a low credit score, you’re more likely to be turned down for the loan or be given a high-interest rate, which will make the loan more expensive.
• You can’t get a better interest rate than the debt you are paying off.

It’s always important to calculate if you can afford the monthly payments on any new loan before you apply. The loan should leave you in a stronger financial position; if it does not, you should not pursue it.

How do you take out a personal loan?

You’ll first need to apply with a lender like OnPoint or another credit union or a bank. An underwriter will review your application and relevant details like your credit report and debt-to-income ratio to determine your creditworthiness, whether to approve or deny your application, your interest rate, term, and loan amount.

Have more questions? We have the answers.

Taking out a personal loan could be a great option to meet your financial goals. To learn more about the personal loans available through OnPoint, reach out today.