Personal loans are all-purpose loans that banks provide. You can utilize this type of loan for stuff like unconsolidated debt, a home improvement project and unexpected expenses. There are unsecured personal loans and secured 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. However, the lender can consider other collection actions. This includes filing a lawsuit against you, hiring a collection agency, and reporting you to credit bureaus.
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 provided as collateral can include houses, cars, business assets and land title deeds.
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Personal loans range between $1,000 and $50,000. The personal loan amount you get depends on your income, the lender and your credit rating. You qualify to borrow more money if you have a good credit score and a large income.
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Personal loans have fixed interest rates. The interest rates are determined by the credit rating. If you have a good credit score, you may get lower 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 with an inconsistent interest rate is difficult to budget for.
Usually, personal loans have a fixed repayment period. The loan period is stated in months. For instance, you can be required to pay in 60, 48, 36, 24, or 12 months. Sometimes, the interest rate is based on the repayment period. Often, longer repayment periods increase interest rates. You can also get a pre-payment penalty. This refers to a fee charged for early loan repayment. Avoid personal loans that come with 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 step in the loan application process affects your credit. To maintain a good credit score, make your loan payments on time.
Beware of additional or hidden fees and scams when applying for loans. Don’t take a loan from a lender that requires you to send cash to secure a loan. In addition, a number of loaners charge additional fees for their services. Therefore, it’s advisable to find out the extra fees before taking a loan. Read the terms and conditions of the loan carefully to identify any hidden or extra charges.