Personal Loans are the most common type of loans taken out these days. Broadly speaking, if a loan is for anything other than to buy real estate or a motor vehicle, and is taken out by a person rather than a business, it’s probably a Personal Loan.
So, what exactly is a Personal Loan, and how do they operate?
On most occasions the lender won’t care too much about the intended purpose of the loan. You can pretty much use it for anything you like. All they really want to know is whether you have the ability to pay the money back or not.
The average general purpose Personal Loan tends to attract higher interest rates than other fixed term secured loans. Therefore larger loans for more specific purposes such as significant home improvements or upgrading the family car are better sourced as secured loans, where much better terms will be available.
Personal loans work in much the same way as any other loan, in that you have to make monthly payments over the term of the loan, with the flexibility to speed up the payments, or make an extra lump sum installment and save considerably by paying the loan off ahead of schedule.
There are two types of personal loans – secured and unsecured.
The larger the loan, the more likely you will need to provide a suitable level of security. Security will normally be your home, or in the event of a car loan, it could possibly be the car. Going with a secured loan has three advantages. Firstly you will get a lower interest rate, secondly it will be easier to get the loan, and thirdly you will be able to borrow a lot more.
Whereas, unsecured loans will cost you more in interest, will mean you have to undergo much closer scrutiny of your finances by the lender to assess your ability to make the repayments, and finally, will seriously limit the amount you can borrow.
Most money-lenders aren’t fools. They always endeavour to get a guarantee that they’ll get repaid, so they’ll push for a secured loan to protect their commercial interests. If you fail to pay up, they are more than happy to sell your house or car to get their money back. It’s a harsh reality, but it happens every day.
The smart thing to do, is to only borrow what you can comfortably handle. Don’t budget to spend ever last dollar you have on loan repayments. Make sure you have a “safety net” for those unexpected little expenses that inevitably occur.
The internet is a great resource for finding out what’s available in the Personal Loan market. Make sure you get the best deal you can by taking the time to investigate the loan choices available, and finding out what suits your requirements best.