If I apply for a personal loan do I have to accept it?

The most common reasons for taking out a personal loan include medical bills, home improvements and debt consolidation. But the list of possible reasons why someone might want to apply for a personal loan is nearly infinite, as the funds from personal loans can be used for almost any purpose. Very few restrictions exist. Illegal activities and gambling are not valid loan uses, and you typically will not be able to use a personal loan for college education (you’ll use a student loan instead). But that’s about it.… read full answer

However, legitimately good reasons to get a personal loan only represent a small fraction of the countless motivations people have for wanting to borrow. The best reasons to get a personal loan are to pay off unavoidable, urgent expenses (e.g. hospital bills) and to make investments that will pay off in the future (e.g. home improvements that increase your house’s value).

You can use personal loans to pay for less urgent things, such as weddings or vacations, too. But it’s best not to go into debt for those kinds of expenses. The more responsible course of action is to pay with money you already have, so that if a financial emergency hits, you won’t already be in debt.

Reasons to Get Personal Loans:

1. They are versatile: The most common reasons for applying for personal loans include medical emergencies, debt consolidation, major purchases and home improvements.
2. They can have lower APRs than credit cards. New credit card offers have an average regular APR around 19%. The average personal loan APR is closer to 10%, and personal loans can have APRs as low as around 4%.
3. They offer flexible funding. Most personal loan providers offer minimum loan amounts of $1,000 to $5,000. But their maximum loan amounts can stretch anywhere from $25,000 to $100,000.
4. They have decent payoff periods. Personal loans can give you anywhere from 1 to 12 years to pay off the balance. While that’s shorter than the terms offered by some types of financing, like home equity loans, it’s a lot longer than the 0% introductory periods offered on credit cards (6 to 21 months).
5. They’re fast. Most personal loan providers will approve and fund you in less than a week. And the very best options can provide funding as soon as the same day you apply.
6. They usually don’t require collateral. The majority of personal loans are unsecured, although secured personal loans do exist.
7. There are lots of options. Tons of lenders offer personal loans, from banks to credit unions to online companies. There are choices for people of all credit levels.

There are a lot of good reasons to get a personal loan, and a multitude of different situations in which you can use one. If you’re ready to start your search, you can compare personal loans on WalletHub and get pre-qualified with multiple lenders without hurting your credit score.

Personal loans affect your credit score in the short-term and in the long-term. In the short-term, a personal loan may damage your score because it causes a hard credit inquiry and increases your debt load. But in the long-term, a personal loan can either help or hurt your credit, depending largely on whether or not you pay the bills on time. Ultimately, it’s up to you how much impact the personal loan will have.… read full answer

How a Personal Loan Affects Your Credit Score:

• Does temporary damage with an initial hard inquiry. When you first apply for a personal loan, your credit score will immediately take a small hit. That’s because applying for a personal loan triggers a hard inquiry into your credit history. But this shouldn’t drop your score by more than 5 points or so, and you should be able to bounce back quickly.
• Adds to your overall debt. If you’re approved for a personal loan, you will immediately have a higher debt load, which may cause your credit score to drop in the short-term. That’s because the more debt you have, the riskier it is for banks and credit unions to lend to you.
• Reports to the major credit bureaus monthly. The banks, credit unions and online lenders that issue personal loans report payment information to the major credit bureaus on a monthly basis. If you make on-time payments, you can expect your score to increase. But if you are late or don’t pay altogether, your score will drop.
• Improves your credit mix. Proving yourself capable of managing multiple types of loans and lines of credit responsibly is good for your credit score. It shows you can be trusted to repay what you borrow in a variety of situations. So if you only have one or two other types of accounts on your credit report, such as credit cards or student loans, your score may benefit in the long run from getting the personal loan.
• Could help reduce credit utilization. Personal loans give you a lump sum up front, which you pay back in monthly installments. This is different from a credit card, where you can borrow up to a certain amount any time you want. Credit cards are known as “revolving credit,” and a big part of your credit score is how much of your revolving credit you use up each month, or your “credit utilization ratio.” Personal loans don’t count toward this ratio, so if you use them to pay off revolving debt, you can lower your ratio and improve your score.

In conclusion, as long as you’re sure to pay on time each month, a personal loan should eventually increase your score by a lot more than the initial inquiry caused it to fall. You can also avoid wasting hard inquiries by getting pre-qualified for a loan first. Pre-qualification only uses a harmless soft inquiry. And while it doesn’t guarantee approval, it will let you know if your odds are good.