A personal loan is actually money you borrow from a loan company for your own personal use. The actual lending institution can be a bank, financial institute, investment broker, or private lending company. A person can apply for such a loan in your home city or on the internet. Personal loans can be used for all kinds of needs including a family vacation, vehicle repairs, education, medical expenses, home repairs or renovating, legal bills, and debt consolidation.
The amount you are eligible for will depend on the lending institution's guidelines for such financial loans, your income, and your overall credit ranking. A personal loan is usually confused with a personal line of credit. The main difference between the two is that a personal loan is a lump sum amount of money released to you by the loan provider. A line of credit is similar, but you have access to funds up to your credit line that you can access all at once or just what you need when you need it.
Personal loans can be either secured or unsecured. Secured personal loans suggest you will offer the loan provider some type of guarantee that they can claim in the event you donâ€™t repay the loan. This can be a vehicle, land, or another asset you own. Unprotected personal loans mean there is no security. The interest rates for unsecured loans are higher because there is a greater risk of nonpayment.
The terms of a personal loan are generally one to five years. The terms of your loan depend on the loan company and the amount of money you borrow. It is important that you understand the loan terms just before accepting the funds. While an extended loan term will result in lower payments, you can be paying more for the loan over the life of it due to the amount of interest. Keeping that in mind, only borrow the amount you need for your specific purpose and repay it as quickly as you can. Make sure the set payment on a monthly basis is something within your reach on a regular basis so you are not likely to default on the loan.
The most common use of a personal loan is to combine other debts. This is a great way to have one monthly payment and reduce your monthly expenses. However, this scenario only works if you are willing to set a budget and life within the limitations of it. Too often, a person who gets a personal loan to consolidate their debt racks up huge debt again quickly. Then they not only have that debt to pay again but now they have a personal loan payment to meet each month as well. It is wise to enroll in a debt management course if you feel you may be at risk to continue the period of accumulating more debt. These can be taken for free at many nonprofit credit counseling centers around the Nation.
Personal loans are a great way to access the money you need quickly. The application process is easy. You will generally need to verify employment, income, and residence. The lending company will pull a credit check. You will likely still qualify for a personal loan if you have bad credit or no established credit. However, be prepared to pay a higher interest rate and have some type of collateral to offer.