A personal is a loan that establishes consumer credit that
is granted for personal use. A personal loan is a multipurpose loan, which can
be used for number of reasons, such as to fund your car, home improvement,
wedding, Christmas expenses, debt consolidation or whatever you want. Personal
loan sometimes also called as any purpose loan.
Personal loans are the most common loans in the financial
market which is provided by almost all the banks, financial institutions, and
building societies. Personal loans carry competitive interest rate which varies
from person to person. In general, interest rate depends upon various factors
such as:
- Borrowed
amount
- Base
rate
- Credit
score of the borrower
- Financial
status of the borrower and
- Credit
worthiness of the borrower etc.
Types of Personal Loan
A Personal loan in available in two types:
A personal loan can either be secured against property or
unsecured, depending on your personal circumstances and preferences.
Secured Personal Loans
Secured personal loans are those loans which are given
against a security which is generally your home or any personal property like
your car. The collateral placed is the security against which the personal loan
is given.
This collateral acts as the security which guarantees for the repayment
of loan. The loan lender can seize your property in case of non repayment the
personal loan.
Unsecured Personal Loan
Unsecured personal loans do not require the borrower to
pledge anything in return. In today's world, unsecured personal loan is a
better option than secured personal loan for those who can't offer any
security.
No proof of any thing is required and also loans do get
processed quickly. Because the lender gets no security for his investment, unsecured
loans typically have a higher APR then secured loans.
Personal loans are classified into the following categories on
the basis of the repayment terms and conditions:
- Installment
loans
- Balloon
loans
- Single
payment loans
You can opt for any one of these repayment options depending
on your financial condition.
Steps for Finding the Best Deal
Nowadays, along with banks and financial institutions,
agencies and groups are also offering personal loan. This implies that there is
a huge competition among lending companies. Such competition is beneficial for
the borrower because the interest rates are being decreased in order to attract
loan applicants.
Therefore, now the borrower has many choices before him. The
best thing to do is to shop around for the right lending company. The following
are some of the things you need to consider while finding the best deal.
- Hidden
Loan Charges: A person must be extra cautious when he finds a lending
company that offers ridiculously low interest rates as they may include loan
charges that are not stated up front when the borrower is applying for the
personal loan. So the borrower should carefully read the fine print.
- Annual
Percentage Rate: The system used for computing the actual APR or Annual
Percentage Rate of a personal loan is known as Risk-based pricing. The
basic principle of this system is that the APR should be higher if the
lender's risk is higher. And the APR should be lower if the lender's risk
is low. The "risk" is based on the borrower's credit history.
- Early
Repayment Charges: Another significant thing that a borrower should find
out is the existence of early repayment charges. Some lending companies
add an extra charge for loans that are paid earlier. This extra charge is generally
equal to the one or two months of interest.
Personal loans are comparatively easy to apply as well. The
first step on the part of the borrower is to go online fill his details and
secondly do whatever else is asked of him. Once all the formalities are done
the loan decision is made quickly. So people who want to apply for personal
loans can do so without much bother.
Other Resources
Personal Loans
Related Articles:
|
