A personal loan is a type of unsecured loan that assists you to meet your current financial needs. Usually, some loans are acquired to cover specific costs. For example, mortgage loans, auto loans, and student loans will solely cover housing, car and schooling expenses. But, what if the costs you want to cover don’t fall under any of those categories? Loans for such expenses fall under the personal loans category—personal loans cover pretty much anything. This is due to the little or no restrictions placed on them.
Securing a personal loan goes a long way in solving and managing a variety of expenses, including unforeseen ones. Although the process is often more complicated than the process of getting credit cards. Some expenses personal loan can cover include:
–Events: Events such as weddings and funerals require money. Often, these events are impossible to postpone. Personal loans can be utilised to foot the bills during the event and paid later should the event meet your account balance in a bad state.
- Unplanned Expenses: There is an unpopular opinion that unexpected expenses are the primary reasons why personal loans exist. Emergencies like medical illness, major home appliance, or car breakdown require emergency solutions. When you might not be able to afford these varying costs, this particular loan will suffice.
- Debt Consolidation
- Getting Through College e.t.c.
Areyou looking to secure a personal loan? You’ll need a proper understanding of how it works and the reasons why it’s an excellent idea for managing expenses.
A personal loan is a type of Instalment loan. You get a fixed amount of money and refund with interest in monthly installments throughout the loan — which commonly ranges from 12 to 84 months. Once the payment is complete, your account closes. If you need more funds, you have to request a new loan.
No Collateral: Personal loans are not secured, which means you are not required to place an asset of yours as collateral when you borrow. The lender will assess your financial history to decide whether you qualify.
However, personal loans can be in the form of secured loans which are backed by collateral. Your lender owns the right to claim your assets as payment for late/default payments. This is an option for people who doesn’t qualify for secured loans or want a lower interest rate.
LOCKED INTEREST RATE
The interest rate on a personal loan doesn’t change for the extent of the loan. Interest rates will be based on your credit score. A credit score is a numerical value that shows the analysis of your debt and payment history. The credit bureaus verify the credit score, and it exists as a three-digit number. Generally, the better your credit score, the lower your interest rate will be. However, a few personal loans do have variable interest rates that change periodically.
In many cases personal loans come with an option of long repayment periods. Extended repayment periods lower your monthly loan payments, to ensure the amount doesn’t weigh you down. Personal loans make it easier for you to manage personal expenses.
However, it’s wise to not overstretch the repayment period. Some lenders might tie your interest rate to your repayment period – the shorter the repayment period, the lower the interest rate.
LIMITED RANGE: You can only borrow a fixed amount of money. This helps in guiding you to borrow just as much as you can pay back quickly – not more than your capacity due to over excitement.
The amounts of personal loans typically range anywhere from $1,000 to $50,000, depending on your lender, your income, and your credit score. There is a direct correlation between your credit score, your income, and the amount of money you can borrow.
Several lenders offer personal loans. Many lenders, especially banks and credit unions, tend to offer reasonable rates, and some online lenders even provide better terms for personal loans. This is particularly for people with perfect credit scores. Online lenders may be a lot more forgiving of poor credit scores. Meaning that even with a bad credit score, you can still secure a personal loan.
In conclusion, personal loans are like shock absorbers that help us attend to emergencies and unexpected expenses. Getting a personal loan is one of the best ideas for managing your expenses. However, it’s advised to be on the lookout for loan scams, particularly if you have a bad credit history and need a lender. It’s advised that you avoid any lender that guarantees approval without checking your credit. Or that asks you to send money—especially via wire transfer or prepaid card—to secure the loan.