Sometimes, significant expenses in life go beyond the reach of a savings account no matter how frugal we may be. Major home renovations, a dream wedding or simply covering emergency expenses can sometimes go beyond what we’re able to save.

In these instances, it might be possible to get a personal loan. Banks or credit unions offer these loans for personal expenses like those listed above, as well as things like credit card debt consolidation, funeral expenses or other large purchases. Personal loans are different from other loans you might have, like a mortgage or student loan, because those funds are for one specific purchase. Personal loans can be used for a wide variety of things and can be helpful tools, but there are some things to know before you seek one out.

What are the types of personal loans?

Personal loans can be either secured or unsecured. Secured loans are backed up with some kind of collateral. You can use an asset such as your home, vehicle or savings account as collateral. Unsecured loans do not require collateral, and banks, therefore, consider them riskier. It is up to the financial institution whether collateral is required or not. Because lenders view unsecured loans as higher-risk, they usually carry a higher interest rate.

Consider fees and interest rates

Personal loans don’t usually require an application or prepayment fee, but some do come with an origination fee of somewhere between 1% and 10% of your loan amount. In some cases, you can find a lender that doesn’t require these fees, often depending on your credit score, but that’s not the only thing to consider when deciding on a loan. You must also look at the annual percentage rates, which include the interest rate and other fees, to determine the actual cost of the loan.

Timing of funds

For some things — like a big wedding or a home renovation — you will likely be able to exercise some patience when getting the money from your loan. But for other expenses, like medical or funeral bills or funding a critical home repair like roof or water heater problem, you’ll probably want the money as soon as you can get it. If that’s the case, seek out a lender that can offer you a quick turnaround from application to funding, and make sure that you have all the necessary documents ready, like pay stubs, proof of address and tax documents, to make the process as expedient as possible.

Flexibility and discounts

Interest rates are primarily based on factors like your credit score, debt-to-income ratio and other longstanding financial metrics. But some financial institutions offer rate discounts of 0.25 or 0.5 percentage points for things like setting up automatic payments or if you have multiple accounts with one institution. It may not sound like much, but those discounts can add up over the life of a loan and are worth asking about. In addition, check with your lender about potential payment flexibility. Some banks will allow you to defer a payment after a certain number of on-time payments in a row. It’s always a good idea to ask your lender what will happen if the unexpected pops up, like job loss or an injury or death, so that you can be prepared if the worst happens.

Ultimately, you can use personal loans to come up with the funds for those things in life that are either unexpected or beyond the reach of our savings accounts. Do your research and comparison shop to find a loan that works for you.

Finances FYI is presented by 1st Security Bank.

At 1st Security Bank of Washington, we take a customized and personal approach to your financial well-being. We live in the communities we serve, so our branches offer tailored solutions to their communities. We believe relationships make the difference, and that sets 1st Security Bank apart.