In today’s world, more people are taking out personal loans to make ends meet. The reason behind taking out a personal loan is that it is an unsecured loan, so no collateral is needed, and also that the processing time is faster.
Now let’s see what are personal loans.
What Are Personal Loans?
Personal loans are unsecured credit provided by banks and other financial institutions, based on your financial and employment history. Criteria such as repayment capacity, profession, income level, and credit history are all taken into account.
It is commonly used for financial emergencies, home improvement projects, mortgage help (such as a loan secured against property), or to repay debt. These loans are given in a lump sum and are payable in small installments over a course of time, between one to seven years.
The interest that is expected to pay for these loans is somewhere between 4 to 36 percent, depending on the credit worthiness and loan product that is selected by you.
How Do Personal Loans Work?
Once you are approved for a personal loan, then the cash is directly transferred to your checking account. If you are repaying some existing loan then you can ask the lender to give the cash in individual bills as well.
After you get the funds, get ready to pay them back within 30 days. When your personal loan is totally paid, the credit line is closed. Then you no longer have access to it.
When you are going to search for places to get a personal loan, always search for “personal loans near me.” So you can keep in touch with them easily.
Types Of Personal Loans
If you are looking to get the best personal loan, then there is a long list of personal loans you can easily opt for. There you might get a fixed or a variable interest rate.
Let’s discover personal loans and their types together.
1. Secured Personal Loans
This type of loan requires you to keep an asset as collateral. It can be anything from jewelry to a house, this is known as a title loan.
Secures personal loans are ideal for those with, or for those who want personal loans for bad credit. But putting up collateral has its downside as well. If you are unable to pay the loan payment, then your collateral might get seized.
2. Unsecured Personal Loans
These types of unsecured loans don’t require you to have collateral. You will get much faster access to the funds than any other loan, without putting your assets at risk.
Unsecured personal loans are best for the ones with a great credit score. But the rate of interest is higher in this one than in secured loans, since the lender assumes more risk here.
3. Debt Consolidation Loans
Debt consolidation loans are normally taken to repay any outstanding debts faster and save on the interests. The borrower also has the benefit of streamlining the repayment process as per their need.
The main idea is to secure a loan with a low-interest rate than you are paying on the debt you plan on consolidating. In an ideal situation, you will save thousands of dollars in interest and eventually get out of debt faster.
This type of loan can be a bit risky as well if you want to pay your credit card debt through it. If you don’t stop swiping the card after you maxed out the balance, then you might end up in more debt than before.
4. Co-signed and Joint Loans
If you see that you are unable to get a personal loan on your own, then you can be eligible to co-sign a loan. The other individual should have a strong credit score and history to be qualified to sign the loan with you.
Though the co-signer won’t have access to the loan but is liable to repay the money back if you fail to do so. Some lender allows both borrowers to have access to the loan.
5. Fixed-Rate Loans
With Fixed-rate loans, the rate of interest doesn’t change over the course of your repayment. The borrower or you have to repay back the same amount either monthly or weekly, throughout the full duration of your loan payment.
Most of the loans, in general, belong to this category. You can easily set a budget to repay back the loan amount in your monthly budget, as it doesn’t change over time.
6. Variable-Rate Loans
Variable-rate loans are the ones that come with fluctuating interest rates. With time, your monthly repayments could go up or down. It depends upon the rate set by the banks.
Though it is difficult to allot a payment on variable-rate loans. But the rates sometimes are lower than on fixed-rate loans.
Hence, you should only consider this type of loan when you are taking a loan for a short period of time.
7. Personal Line Of Credit
A personal line of credit is like a credit, here you will get access to a fund pool, from where you can borrow anytime you want funds. Unlike other personal loans, which make you pay interest on the total amount you borrowed. But here you only pay the interest on the amount you actually draw.
Thus this type of loan system works as a safety net, that works on the need basis of funds.
8. Buy Now, Pay Later Loans
This type of loan allows the customers to purchase something now, but the payment is done later. The balance is divided into equal installments to be paid later, weekly, or even monthly.
These types of payments are normally done over mobile apps. You are approved for the purchase instantly. And pay the loan later with not-so-perfect credit if you demonstrate your ability to pay yourself.
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Frequently Asked Questions (FAQs):
A personal loan is an amount you borrow for various reasons like for weddings, or home renovations.
It is good to take a personal loan if you have a stable income and a good credit score, then you will be getting a low rate of interest.
Yes, you can easily pay off personal loans. But it depends upon your income and also on the rate of interest on the loan amount.
Personal loans can be very easy to get and are generally paid off really fast and easily. But before you take out a loan, you should always know the rate of interest of the loan.
You also should have a good credit score or else, it becomes difficult to secure a good loan with a low rate of interest.
Sreya Bhadra is an ardent writer who excels in genres like entertainment, Technology, lifestyle, and current affairs. Belonging from a journalism background, she believes in the power of the pen in conveying any message.