Woman submitting a loan application online.

A personal loan can be the lifeline you need to pay off high-interest debt or help to make things right at a time when you can least afford for things to go wrong. Before you apply, it’s important to get familiar with the key parts of the loan application.

What is a personal loan?

A personal loan is typically an unsecured loan with a fixed rate, with approval based on factors like your credit score, your ability to repay, credit history, and possibly, job stability. This kind of loan does not require collateral.

In other cases, a personal loan may be secured by collateral such as a savings account with a variable rate. Be sure to read the contract details.

Ask yourself why you need the money

It’s common to use a personal loan to consolidate debt or to cover an unexpected expense. Knowing your purpose upfront can help you decide if this type of personal loan is right for you or if a different line of credit is better suited for your needs.

For example, if you have certain assets like a home with available equity, you may be better off with a home equity line of credit (HELOC) to pay down high-interest debt.

Another option might be a Shared Secured Loan, which comes with either a variable or fixed rate based on the term you're approved for. With these loans, you borrow money and use your Share Account as collateral. Your savings remains intact, yet you get the money you need.

Understand the state of your finances

A lender may look at your debt-to-income ratio, which tells them if you’re financially able to manage another monthly payment and successfully repay debts. If you’re unsure, try a Loan Payment Calculator to determine what your monthly loan payment might be. Then check your budget to make sure you can afford this additional monthly bill.

Adding another creditor could stretch your personal finances too far and make it difficult to keep up with existing payments. Missed payments could negatively impact your credit score.

Approvals for personal loans are not only based on your credit score. Some companies consider your capacity to repay the loan, your available capital or how much money you have in reserve, and your character.

What is the personal loan interest rate?

Are you borrowing at a price you can afford? If not, it’s OK to search for a better rate. You may even have to re-examine your loan request: Is it based on a real need such as a financial emergency, or a want (e.g., pay down debt)?

Find out the loan terms

While the interest rate is an important part of any loan, you also need to know and understand the terms offered. A closed-end loan will have a specific start and end time for paying back the funds. Again, this is where you need to consider if you’re able to meet those terms, if another loan type is better for you, or if maybe now is not a good time to take on more debt.

Whatever your reason for applying for a loan, take time to understand all aspects of the application.

Subject to approval. APR = Annual Percentage Rate. Open-End Signature Personal Loans have variable rates and are available for LGFCU members residing in NC, SC, GA, TN and VA. Variable rate is subject to change quarterly and is based on the 26-week Treasury Bill. The APR cannot increase by more than 1% each quarter over the previous quarter and cannot exceed 18%.

HELOCs are subject to approval, are available for properties located in NC, SC, GA or VA, and are not available for manufactured homes. Members must reside in NC or bordering states to be eligible.

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