All You Need to Know About Personal Loans

When there is a need for quick cash to cover up those miscellaneous expenses, a personal loan is a way to go.

By contemporary definition, a personal loan is a monetary resource borrowed from a financial institution (credit union, bank or online lending company) to be repaid in installments over a specified period.

This class of loans is typically harder to process and more expensive to repay than conventional mortgage or home equity loans. However, when there is an emergency, we do not usually have enough time to select.


Personal Loans are unsecured loans

With a personal loan, the benefiting party is not required to provide a collateral security, which can be a house, a car, or any other valuable property for loan access. The lender bears the burden of the risk of non-payment since there is no asset to seize. This fact is well reflected in the interest rates assigned to these loans. Private lenders have an option to facilitate loan repayment in the event of a contract breach. That includes hiring a collection agency, filing a lawsuit, or submit a late payment report to credit bureaus.


The loan facility is available for use for any need

Unlike mortgage, car, or student loans, a personal loan may be used to fulfill any want or need. As long as the loan has been approved, the borrower can utilize the acquired funds as he/she pleases without fear of any punishment. The only requirement is that the borrower respects the repayment plan.


Interest rates are fixed

In most instances, the interest rates for a personal loan are set at a specific value that remains the same over the course of servicing that particular loan. As we noted earlier, the value of this interest rate is tied to the performance of the borrower’s credit score. Higher credit scores lead to lower rates and vice versa.


Personal loans (like most other loan facilities) have a significant effect on your credit score

All lenders provide reports of personal loan proceedings to credit bureaus. Every detail from a loan application down to the point when repayment is finally completed is fully documented and forwarded to the appropriate credit bureau. Once a borrower defaults on a payment, it is reflected in the report and then used to update his/her credit history. If you are looking to maintain a healthy credit score, it is very important for you to make your loan payments on time.


Interest rates for repayment periods are fixed

Every personal loan has a specific duration of time during which the borrower must completely offset the loan repayment. The most common time specification is 12 months, however, periods can vary. You always have to remember that longer repayment durations translate to higher interest rates since the specified interest is stretched for a more extended period. In addition, the presence of an open loan facility usually counts against a borrower if he/she intends to get an approval for another loan.


It is always good to make bigger payments

Smaller payments of personal loans typically attract higher interest rates. Some financial institutions take it as far as turning down loan applications for less than $1000. This characteristic of personal loans makes it particularly tempting for borrowers to opt for loan facilities that are added to their needs.


Personal Loan scams 

Loan scammers are usually desperate to secure the funding they need and use this fact to their advantage. Beware of any lender who promises straight approval without first verifying your current credit history. Moreover, stay away from lenders who require you to pay upfront (usually via wire transfers) before granting you the loan facility.