If you are borrowing money for your personal use, you could call it a personal loan. The lender generally happens to be a financial institution such as a bank or may be a micro-lender. Personal loans may be used for paying up something or buying whatever you require to buy. The banks usually determine the loan amount in terms of the credit history, the borrower’s capacity to pay and the bank’s own internal credit plans and policies. Personal loans are actually paid as a lump sum but the principal, as well as, the interest could be repaid in installments.
Personal loans could easily be borrowed from banks. These are supposed to be the general-purpose loans which could be used by you at your own discretion. You could use the loan amount for multiple things including for paying off unanticipated expenses, for consolidating debt and for a simple home improvement project. You must learn all the fundamental facts about personal loans so that you do not end up messing up your financial health.
Personal Loans Involve a Fixed Amount
The personal loan amount would be ranging from $1000 to a maximum of $50,000 and it would be depending mainly on your income, the lender involved, and of course, your credit rating. The higher the income and better the credit profile/score, you could borrow more money. However, some banks would be having a cap on the personal loan amount that one could borrow. Personal loans are actually, supposed to be one-time loans and you would not be able to borrow from the same loan, again and again, in the manner, you could do with any revolving balance on credit cards. When you make the payments, the loan balance is definitely reduced but that does not make any credit available to you again for borrowing from the same loan. Once the entire loan amount has been repaid, the account would be officially closed. If you require borrowing once more, you could consider reapplying for a fresh loan.
Personal Loans Are Actually Unsecured
Personal loans would not necessitate any of your assets to be provided as a collateral. In case you default on your personal loan, no lender could automatically claim any of your assets as payment for your loan. This is precisely one main reason why these loans are slightly difficult to obtain. The fact is that the lender has no right to seize any of your assets if you are unable to make the necessary loan payments. However, the lender could take some effective action such as report late payments to the authorities such as the credit bureaus, employ the services of a collection agency or even file a lawsuit against the borrower.
Personal Loans Involve Fixed Interest Rates
Personal loans including online personal loans generally have fixed interest rates. The interest rate is actually based on your precise credit rating. You would certainly get a lower interest rate if your credit score is good. Lower interest rates obviously, are preferable as you would end up paying a relatively lower cost for taking the loan. However, sometimes, certain kind of personal loans come with variable interest rates which would be changing periodically. The major disadvantage of the variable interest rates is that the payments could be fluctuating with changing rates making it really difficult for you to chalk out a budget for the loan payments.
Personal Loans Offer a Fixed Repayment Period
You would be given a set time period for repaying your personal loan. Usually, loan periods would be stated in months such as 60, 48, 36, 24, 12 months. Longer repayment period would imply lower monthly repayment but you would end up paying more in terms of interest as compared to a shorter loan repayment period.
Personal Loans Impact Your Credit Rating
Most responsible lenders would be reporting your loan account particulars and details to the authorized agencies such as the credit bureaus. Everything right from your loan application to the timely payments would be impacting your credit score. Making a timely payment every month is the key to achieving a really good credit score.
One more thing you should be aware of while applying for personal loans is that you need to watch out for any type of scams especially if you are taking a loan from a lender who is giving you an assured approval without even examining your credit history and credit score. A little bit of research would go a long way in helping you stay away from any sort of scam.
Author Bio: Mitchell Forester is a financial consultant attached to a reputed private bank. She runs her own blog in her spare time and is certainly an avid blogger. She recommends online personal loans as it could be pretty time-saving and ideal for the typical working woman who would find it difficult to manage time to visit financial agencies applying for loans. However, she warns her readers to check out the credentials of the company before taking the final plunge.