A personal loan is a type of loan taken by an individual for a short span of time. The time period of personal loans is usually two or five years. Unlike a line of credit or a credit card, the time period of loan is fixed & it does not change in any case. Personal loans are granted depending on the borrower’s needs as well as his/her creditworthiness. Nearly all personal loans amount between $ 1000 & $1, 00,000. The set of limitations differ from bank to bank and also how much & how long an individual can take for the personal loan.
Personal Loans are normally unsecured loans which clearly mean that there is no need for any security like a house or car to support the loan. There are different types of lenders in the market offering personal loans including online-only lenders & traditional brick-and-mortar banks. These lenders cater borrowers with different income, credit scores and various other eligibility requirements.
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Each borrower has different requirements and hence there are lenders who expertise in definite areas to render different needs. As no lender can cater to all types of customers as every customer stands out based on their interest rates and many other attributes.
A borrower should perceive the following information before availing a personal loan-
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- Choose the right lender! The correct lender & terms can save you thousands of dollars.
- Examine the interest rates you are offered
- How much amount you can borrow?
- What you can & cannot use the loan for?
- If you can have a co-signer?
Why Avail A Personal Loan?
The certified financial planner & owner of the financial planning website, “Beyond Your Hammock”, Eric Roberge said that a personal loan is not a solution for financial circumstances but it is a Band-Aid to cure improper money management.
According to Eric, an individual should take a personal loan when he/she has a credit card debt along with high interest rates. As one can find it difficult to pay off the debt with high interest rate like a 24% annual percentage rate. The more interest results to a higher payment & more time to be debt-free. This is when a personal loan helps a borrower, as the person can pay off the debt faster by paying less interest.
Basic Requirements For A Personal Loan:
- Good Credit History
- Secure Employment
- Proof Of Identification
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Personal Loans Are Also Risky!
If a borrower fails to make payments on his/her personal loan, it will directly damage their credit. You are highly mistaken if you think that personal loans are completely risk-free! Yes, it is easy to acquire a personal loan as the customer doesn’t have any risk of losing their car or house. But defaulting loan can do some significant damage to the FICO score which makes it more expensive and harder to get money in the future. Failing the payment leads the loan to go to collections & also result to a penalty issued against the borrower and both of these can stay on the credit report for many years.