Personal loans allow people to borrow money from credit bureaus, banks, and other agencies. After borrowing a lump sum, people must repay the amount, with interest, within a specified time frame. Repayment plans can span a time period that ranges from several months to several decades.
How It Works
You can pay off your loan by making minimum monthly payments, or you can make payments that are higher than the minimum in order to limit accrued interest repay the lender more quickly. It is advisable for people to make payments that are higher than the monthly minimum. If you can afford to make payments, you should try to pay off your loans as soon as possible.
Several factors contribute to a lending agency’s decision to grant a loan. When evaluating applicants, a committee may review your credit score, employment record, and payment history. You might need to include a personal reference who can attest to your character. Using this information, an agency will approve or deny your application. If your application is denied, you may be eligible to reapply at a later date. If your application is approved, the lending institution will give you an interest rate. In general, people who are considered high credit risks must borrow money at a higher interest rate than people who are considered low credit risks.
If your credit score is low or if your application is denied, you can ask someone with a higher income and credit score to cosign your loan. A cosigner shares responsibility for the total amount owed. If you default on your loan, the cosigner is equally liable and responsible for making payments.
A social loan is another type of personal loan. The concept of a social loan is a borrower who can obtain money from a lender at an interest rate. While the deciding factors for bank loans are based on credit scored and business objectives, social loans are more flexible. For example, a person might want to lend his or her niece money. With social loans, the borrower and lender can negotiate their own terms and interest rates. You don’t even need to specify a repayment term or interest rate if you prefer to arrange another payment plan.
Benefits of Personal Loans
- Cost-estimates. At any time you want a loan, all you have to do is ask. A company that wants your business will give you the different classifications of loans to find the best deals because they want to choose their services.
- The low interest rates. If you have good credit, you can find low interest rates on consumer loans by check online motor finance solutions. You can spend less and get more, which has won every time.
- Flexible payment options. Often, you can choose the date of payment, how to pay and how much you pay. Sometimes lenders will even create a flexible loan that allows you to pay more now and less later; or vice versa.
- Use variable in case of personal loans. Personal loans are usually not designed for a particular item that lets you use the money as they see fit. Of course, the reason for needing the money is usually included with the approval of your loan, you must have one.
- Easy approval. Usually you can get a personal loan is easier than you can get any other funding which is what makes a great option for people who want more from their credit decision.
If this is your first time applying, you find that your options are plentiful. You will have to borrow money and make sure you get the most benefits and features available, regardless of the amount you need to borrow. Note that you should be able to repay the loan, and if you can not apply.
There are two main types of personal loans:
Secured Personal Loan
As this suggests, a secured personal loan is backed by collateral. This may be a home, a boat, a car or another financial asset. Lack of repayment will result in repossession of the property. If you secure a loan with a home and can’t repay, you could lose your home to foreclosure.
An Unsecured Personal Loan
An unsecured personal loan is not secured by anything other than the signature of the recipient. It’s usually based on general creditworthiness. Because it’s unsecured, the lender will charge a higher interest rate because of the additional risk. If not repaid, the lender would resort to legal claims to make good on the loss.
Secured or unsecured personal loans can be obtained via banks, credit unions, loan companies at brick and mortar places or online.
Following are eight personal loans you might be able to obtain on a secured or unsecured basis:
Home Equity Personal Loan
If you have enough equity on your home, you might be able to get a personal loan secured by your home equity.
Advantages of a home equity loan are:
- The interest rates are lower because the money is secured by your home
- You may be able to borrow a larger amount
- The payback term will be longer
- The payments may be lower
A major disadvantage of using your home’s equity as a personal loan, of course, is that if you cannot repay, you could lose your home to foreclosure.
Home Equity Line of Credit
Again, if you have enough equity in your home and don’t want or need all the money at once, you might want to consider a personal line of credit secured by your home.
Major advantages of this approach are:
- You only pay interest on the amount you borrow
- You have control over how and when you use the money
- The payments are interest only, so they’re usually lower
If you can’t repay the line of credit, you could lose your home to foreclosure.
Short Term Personal Loans
Short term personal loans have the following two characteristics:
- High interest rate- This is because repayment period is so short.
- Small loan amounts- Many online companies will only loan up to $1500 for a short term loan. Banks don’t offer more than $15,000 or $20,000. Collateral may also be requested.
An example of a short term personal loan is a title loan where you borrow an amount secured by the title to a vehicle you own. If you don’t repay, the car will be repossessed.
Fast Cash Advance Loan
A cash advance or payday loan might be useful to take care of an unexpected expense. Characteristics of these loans are:
- They’re easy to qualify for. Usually all you need are some paycheck stubs.
- They have a short term life. You usually have to pay it back within two weeks.
- The interest rates are very high. For example, you can pay up to $30 to borrow $100 at some payday loan firms.
No Credit Personal Loan
These loans have the following characteristics:
- They’re designed specifically for people with no credit history
- A credit check may not be required
- The interest rates may be high
- Make sure you read the fine print and comparison shop for these loans.