Personal Loans: An Overview of Consumer Financing
A personal loan is a form of installment credit offered by banks, credit unions, or online lenders that provides a borrower with a lump sum of money. The borrower agrees to repay the principal amount, plus interest, over a fixed term, typically ranging from 12 months to 84 months (7 years).
Personal loans are highly flexible and generally do not require the borrower to specify the exact use of the funds, making them distinct from specialized loans like mortgages or auto loans.
Debt Consolidation: This is the most popular use case. Borrowers take out a single personal loan (often with a lower, fixed interest rate) to pay off multiple, high-interest debts, such as credit card balances. This simplifies repayment and can significantly reduce the total interest paid.