Personal loans are all-purpose loans that banks provide. You can use this kind of loan for things such as unexpected expenses, unconsolidated debt and home improvement projects. There are secured personal loans and unsecured personal loans.
The borrower doesn’t have to give any asset as collateral for unsecured loans. This means the lender cannot claim your property in case you default payment. The lender has no asset to seize if you can’t finish paying the loan. However, the lender can consider other collection actions. This includes hiring a collection agency, reporting you to credit bureaus and filing a lawsuit against you.
On the other hand, a secured loan is backed by an asset. The lender can claim you property as payment if cannot repay your personal loan. Items offered as collateral may include cars, houses, land title deeds and business assets.
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The range for personal loans is between $1,000 and $50,000. The personal loan amount you get depends on your income, the lender and your credit rating. You have access to more cash if you have a huge income and an excellent credit score.
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Personal loans contain fixed interest rates. The interest rates are based on the credit rating. If you credit score is excellent, you may receive reduced interest rates. This means that you won’t pay much on top of what you borrowed. A number of personal loans contain variable interest rates. Hence, your payment fluctuates because the interest rate changes periodically. A personal loan that has a variable interest rate is harder to budget for.
Usually, there’s a fixed repayment period for personal loans. The loan period is stated in months. For example, you may be required to pay back in 60, 12, 48, 24 or 36 months. Sometimes, the interest rate is based on the repayment period. Often, interest rates increase if the repayment periods are longer. Additionally, you can receive a pre-payment penalty. This is a fee levied for paying the loan before time. Stay away from loans that have pre-payment penalties.
Most banks report their customers’ loan account details to credit bureaus. Your credit score is included in the loan account information. Every stage in the process of applying for a loan has an effect on your credit. Repay your loans on time to maintain a good credit score.
When applying for loans, be on the lookout for scams and additional or hidden fees. Avoid a loan from a lender that requires you to send cash in order to secure a loan. Also, some lenders charge added fees for their services. Therefore, it’s wise to check for additional fees prior to taking a loan. Carefully go through the terms and conditions of the loan to see if there are any extra or hidden charges.