The world of lending can be confusing for the average person. There’s a ton of technical jargon to learn just so that you can begin to understand the terms and conditions offered by various personal loan lenders. There is a lot riding on you knowing what’s what when it comes to getting personal loans online, or even just shopping for one since lack of this knowledge can cost you a bundle. Because of this, it’s crucial that you get to know the basic terminology associated with getting a personal loan.
Oftentimes, whether you’re able to get a personal loan online or otherwise can have a big impact on your life. You likely wouldn’t bother with a loan if that wasn’t the case. It’s important to keep your cool, learn about the lending process and the industry jargon that goes along with it, and get familiar with your financial situation before jump head first into getting a personal loan.
Terminology You Should Know Before Shopping for Personal Loans Online
We’ll give you a general overview of the main terms you’ll need to know if you’re looking into any type of personal loan, including unsecured loans, guaranteed personal loans, and no credit check loans.
We’ll start by showing you the difference between a couple types of loans that people commonly come up with when they’re looking into how to find long-term loans in an emergency like a medical procedure, for a large purchase, or to consolidate debt.
Understanding the Difference Between Installment Loans and Payday Loans
An installment loan is an umbrella term that includes several types of loans, including mortgages, auto loans, and personal loans online and through more traditional lending institutes. It basically means a loan that is paid back over time in a set number of scheduled payments.
While many installment loans are set up in monthly payments over several months or years, that’s not always the case. Sometimes, they’re paid back in a few larger lump sums. The amount borrowed in this type of loan can vary wildly, from a few hundred to millions, depending on the type of loan and the reason the person is borrowing.
Payday loans are an entirely different animal. They are generally small loans that are paid back with interest upon the receipt of the borrower’s next paycheck. The borrower can take out another payday loan if they’re unable to pay back all or part of the loan, racking up another round of interest charges. They’re really only suitable in a pinch because the fees and interest rates for this type of loan are very high, plus the loan term is so short. The good news is that payday loans are almost exclusively no credit check loans.
Other Personal Loan Definitions You Need to Understand
Here are some other basic terms that you’ll need to effectively understand what you need from a personal loan online so you can determine which personal loan is right for you.
This is a term already mentioned that you might need a more comprehensive look at in order to really understand what it means for you as the borrower. The interest rate associated with any loan, whether it’s an unsecured loan or a secured loan, is a percentage of the loan amount that the lender charges you each month in order to lend you money. It’s the fee charged for the use of the assets. In most cases, the interest rates they charge are how lenders make money.
When it comes to personal loans online or through traditional lenders, APR refers to the annual percentage rate. This means the total percentage of interest charged for a loan over a whole year, plus all the other fees charged by the lender. Because it is a combined figure, the APR is generally higher than a loan’s interest rate.
This is referring to the length of time before a loan must be paid back in full. The original loan term is only accurate if you pay the agreed upon minimum amount required each month, no more and no less. Loan terms vary a great deal depending on the type of loan, the amount borrowed, and several other factors. For personal loans online, you can expect a term of anywhere from six months to sixty months.
What Determines Interest Rate, APR, and Loan Terms?
Understanding the things that affect loan terms is also a crucial aspect if you’re shopping for personal loans online. There are several factors that will play into the loan terms you’ll be offered. There are no credit check loans out there that can help you get around some of these factors, but you’re likely to get better loan terms if you don’t need to circumnavigate the usual checks. Here are a few items you can check into before you begin shopping for a loan to get an idea of what to expect.
The amount lenders are willing to lend you and for how long they’ll lend it is often dependent on your income, and maybe even the length of time you’ve been at your job. This makes sense since they need to make sure you have enough cash coming in to pay them back.
Your creditworthiness, often measured with a credit score or FICO score, is determined in large part by whether you’ve paid back the money you’ve borrowed in the past according to the terms laid out. You can learn more about checking your credit score here. Some specific factors that affect your credit score are how many accounts you have open, the types of accounts you have open, pertinent history like defaults or bankruptcies, and how much you owe.
Another factor that kind of falls into your creditworthiness but can affect your ability to get a loan separately from your credit score is your debt-to-income ratio or DTI. This stacks up how much you make per month against how much you owe to debtors. You can learn how to calculate your DTI here.
Putting This All Together to Find the Perfect Loan
Now that you understand more about the terms offered with these types of loans and why you might be offered specific terms, you can use that information to seek out the perfect loan for you. While you could spend hours applying for various loans, you should know that being turned down for a loan can hurt your credit.
That’s why we’ve created the free Loans Now Discovery Process. In a few minutes and with no credit check, you can get a good picture of the best-unsecured loan terms we can to offer you. It could save you time, disappointment, and points on your FICO score.