Personal Loans 101 – Understanding the Basics Before You Borrow

Published by A1 Payday Loans on March 26, 2025

Are you looking for a way to consolidate your debt? Finance a major purchase? Cover an unexpected expense? Small, personal installment loans could be the solution you’re looking for. These loans provide a convenient, flexible source of funding, but like all financial products, they come with their own considerations and requirements.

To ensure you make an informed decision, let’s break down the fundamentals of personal loans, including how they work, what sets them apart from other borrowing options, and what you need to know before you apply.

What Is a Personal Installment Loan?

A personal loan is a lump-sum of money you can borrow from a bank, credit union, or online lender. In most cases, you repay it over a fixed period of time (known as the loan term) through monthly installments. The interest rate you pay is typically fixed, meaning it stays consistent throughout the life of the loan, although variable rate options do exist. Personal loans can be either secured (backed by collateral such as a vehicle title) or unsecured (no collateral required).

Common Reasons to Consider a Personal Loan

There are certain situations where personal loans make financial sense—debt consolidation is one of them. Perhaps you accumulated a lot of debt over the years and have a number of high-interest credit card balances that you pay on each month. A better alternative might be to combine these balances (and other debts) into one convenient payment with a lower interest rate.

Another situation where you might want to consider a personal loan is for a major purchase, such as planning a wedding, buying new furniture, new appliances or renovating your home. A personal loan can spread out the cost over time and often at a more favorable rate than high-interest credit cards. Medical or emergency expenses—car repairs, urgent travel—can also benefit from installment loans, as they can provide a buffer for these unexpected surprises.

Personal loans can even help out when you’re looking to expand your education or professional development. While student loans are typically the first stop for financing education, personal loans can be a feasible option for short-term courses, certifications, and other skill-building programs that might not qualify for traditional student loans.

Key Features of Installment Loans

The key features of a personal installment loan are:

• Fixed Repayment Schedule: Most Installment Loans have a fixed repayment period ranging from 4 to 12 months. You’ll have a set monthly payment, which makes it easier to plan and budget.
• Interest Rates: Interest rates are set by the state and often good credit is not required. Most Installment Loan companies place priority on your job and length of employment when applying, so bad or no credit is not a problem.
• Loan Amounts: Depending on the lender, you can typically borrow anywhere from a few hundred dollars up to a couple thousand dollars.
• Fees: Some personal loans come with origination fees and late fees. Always read the fine print and ask the lender to disclose all fees and the repayment schedule. Most do no charge any fees for paying off early.

How Do Personal Loans Differ from Other Types of Credit?

Compared to credit cards, personal loans usually have lower interest rates. They also come with a clear end date for when you’ll be debt-free, provided you make all payments on time. While HELOCs or home equity loans often have lower interest rates, they typically require home equity as collateral. A personal loan is usually unsecured, meaning you don’t risk losing your home if you default.

Payday loans are another option for when you need fast cash, these loans are most often used as a quick bridge loan to your next pay date. Lastly, auto loans are secured by the vehicle you’re purchasing, whereas personal loans can be used for a variety of purposes without tying the funds to a specific asset.

How to Qualify for a Personal Loan

When applying for an installment loan, be prepared to provide proof of income, a valid ID, proof of residency and proof of active banking activity. Most lenders will not require a credit check.

A-1 Payday Loans offers personal installment loans from $50-$2,500. We understand that life can be unpredictable at times, and we are here to help individuals secure the cash they need to deal with life’s challenges—or opportunities. Our process is streamlined and efficient so that you get cash quickly when you need it. Begin the application process online or stop into one of our locations today.