What You Need to Know About Personal Loans
Personal loans are general purpose loans that are offered by banks. You can utilize this type of loan for stuff like unconsolidated debt, a home improvement project and unexpected expenses. 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 that, if you default payment, the lender can’t seize your property. The lender has no property to claim in case you can’t complete repaying the loan. Nonetheless, the lender can take other collection actions. This includes hiring a collection agency, reporting you to credit bureaus and filing a lawsuit against you.
Conversely, a secured loan is protected by an asset. In case you are unable to repay your personal loan, the lender can take your asset as repayment. Items offered as collateral may include cars, houses, land title deeds and business assets.
Personal loans range from $1,000 to $50,000. Your personal loan amount is based on the lender, your credit rating and your income. If your credit score is good and you have a large income, you can borrow more money.
Personal loans come with fixed interest rates. The interest rates are based on the credit rating. You may receive lower interest rates if your credit score is good. This means that you won’t pay much on top of what you borrowed. Some personal loans have changeable interest rates. Hence, your payment fluctuates because the interest rate changes periodically. It’s harder to budget for a personal loan that comes with an unpredictable interest rate.
There’s usually a fixed repayment time for personal loans. The loan period is provided in months. For example, you can be asked to pay in 12, 24, 36, 48 or 60 months. Sometimes, the repayment period can determine the interest rate. Often, interest rates increase if the repayment periods are longer. Also, you can get a pre-payment penalty. This is a fee charged for repaying the loan early. Don’t go for loans with pre-payment penalties.
Most banks report their customers’ loan account details to credit bureaus. The loan account details include your credit score. 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. Don’t get a loan from a lender that asks you to send money so you can secure a loan. Additionally, a number of lenders charge extra fees for their services. Therefore, it’s a good thing to look out for extra fees before you take a loan. Carefully go through the terms and conditions of the loan to see if there are any extra or hidden charges.
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