Basics of Personal Loans
Banks offer different kinds of loans, one of which is Personal Loan. Available at your discretion, a personal loan is a typical general purpose loan. Expenses like paying bills, car repairs, paying school fees etc. often need unsecured loans to be covered. Personal loans are unsecured loans which are granted to people with good credit records. A good credit record implies an ability to repay.
Often touted as a resourceful tool for debt consolidation loans, multiple accounts can be merged into one single payment through personal loans. However, personal loans are difficult to obtain because the requirements to qualify for personal loans are considerably strict.
What You Should Know About Personal Loans
Here are certain facts that you should be aware of, before applying for a personal loan:
1. Personal loans are unsecured loans. The lender will not require an asset as collateral. This is a good reason why personal loans are difficult to obtain. Although the lender cannot seize an asset, non-payment of the loan can attract lawsuits.
2. Personal loans are based on a fixed amount. Based on your credit rating, a personal loan usually ranges between $1000 – $50000. Higher amounts can only be obtained from banks that you already share a good credit history with.
3. Personal loans have fixed interest rates. The interest rate of a personal loan remains fixed and does not change during its life span. Like the loan amount, interest rates for a personal loan, vary according to the credit rating of the applicant. Hence lower interest rates are preferable because this makes it easier for you to repay the amount. Few personal loans come with a variable interest rate.
4. Personal Loans have a fixed repayment period. If you borrow a personal loan, your repayment period is fixed, mostly in months. Longer repayment periods may lower the monthly repayment amount. However, this tends to increase your interest rate. Shorter repayment periods attract a lower rate of interest.
Since a personal loan is unsecured, they usually tend to come with a higher rate of interest. Also, they are considered as one of the best debt consolidation program. If you do not have an impressive credit history, you could obtain a personal loan by acquiring a credit card. However, this works only for small amounts. An extra option lies in the form of money sourced from friends and family, from whom loans can be obtained with a clear contract on repayment.
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