Personal Finance / Personal Loans for Nurses
Nurses, like other working professionals, sometimes find themselves needing a personal loan. Nursing can be a rewarding career, but it also can be expensive. Maybe they plan to use it to cover the cost of tuition to advance their nursing education. Maybe they have just graduated and are starting their first job and need cash flow for buying scrubs and other required nursing supplies. Whatever the reason, nurses looking for personal loans have options, including credit unions geared specifically toward nurses and online loan providers.
In this blog we discuss:
- What is a personal loan for nurses?
- Why do nurses need personal loans?
- How does a personal loan work?
- Where can nurses get personal loans?
- Which personal loans should you avoid?
What is a personal loan?
It is important to understand what a personal loan is before you can decide whether it meets your needs. Personal loans are based on creditworthiness and income and do not require borrowers to provide collateral to qualify. Nurses can seek personal loans from banks, credit unions, and online lenders. If approved, borrowers agree to pay back the total amount – plus interest – over a designated period.
Nurses who have never taken out a personal loan before should educate themselves on how interest works. Interest is a fee banks charge you for using their money. Interest payments are calculated based on a percentage of the principal amount (denoted by the agreed-upon interest rate at the time of borrowing).
Most personal loan terms require repayment within two to seven years. Lenders set a regular repayment schedule so borrowers know when payments are due and how much they must pay.
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Why do nurses need personal loans?
One of the biggest advantages of personal loans is they can be used for many things. Some loans – like mortgages – must be used for real estate and could not go toward personal debt. Personal loans do not come with those kinds of restrictions. Some of the most popular reasons nurses seek personal loans include:
Consolidating their debt. Nursing students may have several separate loans, all with varying interest rates. This can be burdensome and end up costing them more money than if they consolidated everything under one lender. Types of debt that can be combined include credit cards and student loans. Not only can nurses lower their overall interest rates by consolidating debt, but they also can make their debt easier to manage.
Managing new expenses. Nurses just starting in their careers may find themselves needing to pay to move to a new area where their dream job awaits. Others may wish to earn additional certifications or advance their careers in other ways that require paying upfront fees. Personal loans can also cover large purchases like a new washer and dryer, which nurses need to sanitize their scrubs.
How does a personal loan work?
Before nurses apply for a personal loan for any reason, they must understand how a personal loan works to ensure they get the best terms. Here are some of the most common questions borrowers ask about personal loans.
1. How much money can you borrow?
Lenders base personal loan borrowing amounts on the borrower’s earnings, credit score, and current debt load. For most lenders, income and credit score are the most important factors. Personal loans start at around $1,000 and can go as high as $50,000 or more (depending on circumstances). Some banks and other financial institutions have lending caps that place limits on the amount of money a borrower can request. Lending policies do not reflect a person’s creditworthiness. It simply is a way for creditors to safeguard against loan defaulters.
2. How is the interest rate determined?
Most personal loans come with fixed interest rates. For the life of the loan, borrowers never pay more or less than the agreed-upon interest rate at the time of borrowing. Interest rates vary by lender, so it pays to shop around to find the best deal. Conversely, borrowers with impressive credit scores can qualify for better rates because they are considered less of a risk for defaulting on their loans.
3. Are there additional fees to borrow money?
Yes. In addition to interest rates, most lenders charge other fees. Some of the most common include late payment and origination fees. Late payment fees kick in if the borrower fails to make their scheduled payment on time. Late payments are usually calculated as a percentage of the amount owed. Creditors also can charge an origination fee that covers the cost of processing a loan. Banks must provide full disclosure of these fees to the borrower as part of the lending process.
4. What are the repayment periods for personal loans?
Just like interest rates, repayment periods vary by lender. Some loans must be repaid within 12 months, while others can be spaced out over five years. While it is true that installments are lower when stretching out the loan repayment period, the tradeoff is paying back more in interest. Choosing a shorter repayment period means less money out of pocket. Shorter loan periods generally come with lower interest rates as a reward for quicker repayment. Nurses who can swing repayments more quickly should opt to do so.
Where can nurses get personal loans?
Several options exist for securing a personal loan. Banks, historically, have been the go-to for many people who need to secure loans. Whether they need a mortgage to buy a home or a personal loan to buy a car, banks are in the business of lending funds. Nurses that have good relationships with their local bank may want to check out borrowing terms to see if they can get a deal. However, banks are not the only viable option.
Credit unions have existed in the U.S. since April 6, 1909, with the opening of St. Mary’s Cooperative Credit Association in Manchester, New Hampshire. Today, there are an estimated 5,288 credit unions operating in the U.S. Some, like the National Institutes of Health Federal Credit Union (NIHFCU) and the Healthcare Systems Federal Credit Union cater to medical professionals like nurses. Credit unions offer competitive financial products, many at better rates than nurses could secure at other types of lending institutions.
Online peer-to-peer lenders are another popular choice for nurses. Peer-to-peer lending allows borrowers to seek loans directly from other individuals. Borrowing this way essentially cuts out the middleman – banks, credit unions – which can make loans more affordable. Sometimes called crowd lending, this method of borrowing has existed since 2005 and continues to grow in popularity. Whether borrowing from a bank or a peer-to-peer lending service, borrowers must consider default rates. Before using a crowd lending service, check out their loan default rates to ensure they are in line with rates from other financial institutions. Also, review all fees associated with borrowing through them.
Which personal loans should you avoid?
Not all personal loans are created equally. Some come with considerably more risk than others. Nursing professionals who are in the market for a personal loan may wish to avoid certain types of lenders and loan terms. Here are a few to watch out for when choosing.
Payday loan providers started popping up all over the U.S. in the 1980s. Today, with approximately 23,000 payday lenders, you can find one in nearly every city. They can seem like a great idea when needing cash quickly because of their accessibility. However, there are hidden dangers to using them that many people do not consider. One of the biggest disadvantages comes in the form of finance charges as high as 15 to 30 percent of the borrowed amount. Interest for the repayment periods on payday loans – which typically last only a few weeks – can cost borrowers more than a traditional personal loan. Borrowers that cannot repay the loan within the specified time can easily fall into the trap of extending their loan. It is one of the quickest ways to end up in a never-ending cycle of debt.
High-interest personal loans are another pitfall to avoid when borrowing money. While readily available online to borrowers with even the worst credit histories, you pay dearly for the privilege. If you already have bad credit, taking out a high-interest personal loan can further impact your credit score negatively. Higher interest rates also mean bigger monthly payments, which can push some people further into debt.
Title loans require borrowers to put their vehicles up as collateral. They have short repayment terms and high interest rates that can leave borrowers worse off than they were before (and potentially losing their vehicle if they default on their loan).
A final word on personal loans for nurses
Applying for a personal loan has many risks and rewards. Nurses must weigh the reasons for needing one versus the potential downsides to decide whether to proceed. Talking with a financial advisor who understands personal loans can help nurses make the right choice for their circumstances.