A personal loan is money you borrow from a lender for your own private use (therefore also called private loans). The lending institution can be a bank, investment broker, or private lending company. You can apply for such a loan in your home town or on the internet.
Personal loans can be used for a variety of needs including a vacation, vehicle repairs, education, medical expenses, home repairs or remodeling, legal bills, and debt consolidation.
The average personal loan maximum is $15,000. The amount you are eligible for will depend on the lending institutions guidelines for such loans, your income, and your overall credit rating.
Personal loans are regularly confused with a line of credit; and even though there are some similarities it is not the same. When raising a private loan you will be paid a lump sum of money, while you can access your funds up to your credit line with a line of credit. Then you can have the amount you need; when you need it.
Private loans can be either secured or unsecured. The difference is that with a secured loan you will offer the lender some kind of security that the can claim if you do not repay the loan. These can any kind of assets you own, like a vehicle or land. Unsecured loan means you do not offer any collateral. Because of the increased risk for the lender the interest rates for an unsecured loan is normally higher.
The normal terms of a personal loan are one to five years. The lender itself and the amount of money does also impact the terms. You should always be sure that you understand the terms before you accept the loan.
Longer loan terms result in a lower payment. But you will still end up paying more in total, because of the higher interest rates. So always only buy the amount you need. And pay it back as soon as possible. Set the monthly payment within a reasonable amount you can pay.
The most common use of a personal loan is to consolidate other debts. This is a great way to have one monthly payment and reduce your monthly expenses. However, this scenario only works if you are willing to set a budget and life within the boundaries of it. Too often, a person who gets a personal loan to consolidate their debt racks up huge debt again quickly. Then they not only have that debt to pay again, but now they have a personal loan payment to meet each month as well.
If you think you are in the risk to do that, it could be a good idea to enroll in a debt management course. There are normally for free and can be taken in a non-profit credit counseling centers.
A private loan is a great access to quick money. It is very simple to apply for it. Normally you will only have to verify residence, income and employment before the lender will hand you a credit check. It is even possible to qualify for a personal loan if you have no established credit or bad credit. In the last case you must be prepared to present some kind of collateral and pay higher interest rates.
Author: Martin ElmerThis author has published 1 articles so far.