The following article discusses personal loans to explain precisely what they are and whatbenefits they provide to borrowers.
When you borrow money from a bank and the amount is under $10,000, you will probably be procuring a personal loan. Personal loans are offered by a lender to a borrower as an unsecured proposition: unsecured means there is no collateral that you have to put up in order to receive the loan. This differs from say a loan secured against a car whereby if you do not pay the money back on the loan, the car can be repossessed since it represents the collateral.
Personal Loan Eligibility
With a personal loan, you are approved based on your credit history and score. In short, on paper you come off as a person that looks like a solid and responsible borrower that will be almost assuredly pay the loan back. This could be considered a major benefit since the requirements are limited and there will be no “hoop jumping” in order to procure the loan. As such, a personal loan is issued for a finite amount. It is then yours to do with what you please. There will be no restrictions on what you can do with the personal loan funds since you will not be putting up any collateral nor will you be handing over the title to anything to receive the loan.
Does the above mean that there are no terms or conditions associated with taking out a personal loan?
Terms and Conditions of Personal Loans
There will generally be three terms, which could be considered beneficial to the loan recipient.
- The first would be the aforementioned finite loan amount (you will not be opening a line of credit that can be increased).
- The next term will be that the personal loan will have a fixed interest rate. The rate could be anything ranging from fair to very high depending upon your credit rating and the lender you are procuring the funds from. However, it will not be a variable rate that will increase such as in the case of cedit offered by credit cards.
- The third term common with personal loans is that it will have a fixed duration to be paid off. This could be anything from 12 months to 60 months depending upon the type of loan you take out. And, if you are unable to pay off the personal loan at the end of the term, you would need to refinance i.e. you will need a new loan to pay off the old one.
Personal Loan Uses
Some may wonder what it is they can use a personal loan for. The purposes for which a personal loan may be used can vary.
Personal loans can be used for debt consolidation or to pay off higher interest rate credit cards. They can be employed to start a new small business or finance an education. Some may even use personal loans to purchase luxury items such as a television set or even a vacation. Really, there is no limit to what you can use the loan for since the main benefit is that the personal loan comes with limited terms and conditions and are generally provided with fixed interest rates.
Finally, if you take out small personal loans (or even a large ones) and paying them back in a timely manner or even ahead of schedule without missing payments will assist in boosting your credit rating.