Posted by Lending Club :: February 10, 2011 @ 6:16 pm

In this time of financial uncertainty, more and more people are reaching out to their family, their friends, and even to people they don’t even know when they need a loan.  Some of these people think it’s easier to get money, while others have become suspicious of banks and other lending institutions. Whatever the reason individual borrowers give, there’s no doubt that personal loans are making a comeback. If you feel skeptical about jumping into one, here are some things to think about.

5. Fixed Repayment Time Frame

If you’re thinking about using a credit card instead of getting a personal loan, think about this: most personal loans have fixed repayment terms, while minimum credit card payments are designed to keep you in debt longer. Most personal loans have a term of 1, 2, 3, or 5 years, and when you’ve made all the payments, you’re done. You can go into the process knowing exactly how long your debt will take to pay off, instead of watching it stretch into the future.

In addition, some personal loans can be paid off early without a penalty for prepayment. Many loans via financial institutions have this penalty, and thus are designed in the best interests of the lenders, not the borrowers.

4. No Collateral Necessary

Considering a home equity loan or another traditional type of loan through an institution? You’ll definitely need collateral. Whether this is your house, as with a home equity line of credit, your car, or something else of value, traditional lenders ask you to put something on the line in case you can’t repay the loan. Personal loans, though, don’t require this, so the valuable possessions that you’ve worked so hard to obtain are not on the line.  However, be aware that your credit history will most likely be damage significantly if you default on a personal loan.

3. Get Rewarded for Good Credit

Many loans that you can get via traditional means, as well as credit cards, have standard interest rates. No matter how good your credit is, you’ll pay the same amount of interest on your loan as someone with a poorer credit history. This is not so with personal loans. These loans offer a variety of interest rates, and you’ll be rewarded with a lower one of your credit score is high. That means you’ll pay back less money overall and there will be more in your pocket along the way.

2. Fixed Rate = Fixed Payment

In addition to offering lower interest rates for good credit, the interest rates on personal loans are fixed. Once you’ve qualified for a low rate, it’s locked in for the life of the loan. This separates personal loans from both credit cards and lines of credit, where the interest rate can go up or down at any time.

Having a fixed rate means that your monthly payment is fixed, too. This allows you to accurately plan ahead and include your loan payments in your budget, knowing that the amount won’t suddenly skyrocket and leave you scrambling for cash.

1. A Personal Loan Makes Things . . . Well . . . Personal.

When you take out a personal loan from a direct lending network like Lending Club, there’s no big financial institution behind the money that you get. There are just people like you who happen to have money available and who are willing to consider your need as their own investment. This adds motivation for making your payments in full and on time, because your money is going toward individuals with names and faces, not to a bank or a large corporation.

Even if you’re not a financial guru, you can see that this is a game-changer. With many people feeling suspicious of large institutions, personal loans allow you to take them out of the equation entirely and still get the money you need.

These are only a few of the reasons why you might want to consider a personal loan instead of a credit card, a line of credit, or a traditional loan the next time you need money. Not only will you get a better financial deal that way, but you’ll get rewarded for your good credit while connecting with investors instead of feeling anonymous and at the mercy of a large institution.

Have you participated in a direct personal loan, either as a borrower or an investor? We’d love to hear about your favorite part of the experience in the comments.

Image courtesy of RJ.