Product Spotlight: Personal Loans
In this series, we analyze the various product offerings at American Heritage to explain their benefits and uses. Taking either a product-first or problem-first approach, we aim to deepen your understanding of banking products and services for robust financial literacy.
Loans have been around for millennia, with records dating back to early Mesopotamian farmers borrowing seeds and livestock and using their yields for repayment. Today, loans remain one of the most classic banking products available due to their simplicity, versatility, and usefulness.
A personal loan is a sum of money borrowed from a credit union, bank, or other lender, paid back over a set amount of time in fixed monthly installments, with interest.
What are some uses for personal loans?
A personal loan could realistically be used for any large purchase, such as a wedding, vacation, home projects or furnishings, holiday shopping, or unexpected expenses.
You can also use your loan for debt consolidation to obtain a lower interest rate, combine multiple debt sources, and have fewer payments to keep track of each month.
A personal loan can be useful for covering expenses when an emergency fund can’t cover the full cost of your situation, without having to rely on third-party lenders or expensive credit card bills.
What makes personal loans different?
What separates the personal loan from other types of lump-sum loans such as an auto loan is that personal loans are unsecured – meaning that there is no collateral that secures the loan – leading to higher interest rates.
On the other hand, using auto loans as an example, your vehicle is collateral for the loan, resulting in lower rates for you and security against risk for the financial institution. As a result, using a dedicated product loan like an auto loan is more favorable for you as the borrower.
If you don’t wish to use your home as collateral or don’t have enough home equity for your intended project, a personal loan could be used as a home improvement loan for smaller renovations. Home equity loans also tend to have significantly longer term lengths to accompany higher borrowing amounts.
Revolving credit, such as a credit card, is best used for smaller purchases that can be paid off monthly to avoid paying higher interest rates. Compared to credit cards, personal loans offer more predictable monthly payments with a lower interest rate, unless you can take advantage of credit card promotions like a lower or 0% introductory rate.
What do I need to know before I apply?
Before applying for any type of loan, you should carefully weigh all possible financing options and speak with your financial institution's lending experts if you need help assessing your individual needs.
Research your potential lender and compare the listed APR (Annual Percentage Rate) and term lengths for each product. Calculate the monthly payment that fits into your budget, learn how much interest will be paid over the lifetime of the loan, and have a number in mind when you apply.
When applying in-person or over the phone, have a conversation with your financial institution's lending experts and be candid about your situation. These individuals are experienced in their field and will happily help you find a loan amount and term length that will work best for your budget.
How do I get a personal loan with American Heritage?
Once you are ready to apply, gather the necessary documents including identification and financial statements. Then, visit us online or in your local branch, meet with a live representative over video, or give us a call! We can’t wait to serve you and help you accomplish your financial goals.