In essence, personal loans are the types of loans which you borrow from a bank or a credit union or from some private lender. These loans are generally used for any purposes and it is entirely on the user’s discretion to use the proceeds of the loan. In some sense, they might be a bit difficult to obtain and you may have to go through some strict qualification criteria. In case you’re thinking of borrowing a personal loan, there are some important basic things that you need to know about the transaction regarding such personal loans.
Personal loans are usually unsecured one
There are secured loans and unsecured loans — personal loans fall into the latter category. They don’t require any kind of collateral. This is the main reason behind the difficulty of getting unsecured personal loans. The lender can’t demand any asset as collateral and hence only your signature which you sign on the loan agreement is the promise that you make about repaying the loan amount on time. The lender won’t even have any asset to seize from you in case you fail to make timely payments on your loan; however, the lender can’t take any of your property, but you could potentially be harassed by your creditors and debt collectors.
The amount that you borrow from personal loans can range from anywhere between $1,000 and $50,000 and the total amount that you borrow depends on the credit rating. The better your credit score, the more will be the amount that you can borrow from the personal loan lending institution. There are some banks which have a low cap on the total amount that you can borrow, however, this isn’t the case with all banks and your mileage may vary.
Fixed rates are often the nature of personal loans
The interest rate of the loan is locked and it doesn’t change for the entire life of the loan; just like the amount of loan that you can borrow, the interest rates of the personal loan are also based on your credit rating. The better is your credit score, the lower will be the rate as the lender will perceive you as a decent borrower with good financial habits. There are even some loans which come with variable rates and you should steer clear from them.
Applying for a personal loan
In some sense, it’s easier to take out a personal loan from a bank with which you already have an account. The bank might only want to know the reason behind taking the loan and according to that he might also offer you a better loan for your needs.
You can choose an online personal loan wisely and get multiple quotes from multiple lenders so as to be able to choose the best one.