Personal Loans are loans that are granted for personal use. Generally, Unsecured and Secured loans are based upon the borrower’s credit history, income, collateral and the ability to pay back the loan.
There are two types of Personal Loans:
- Secured Loans. A Secured Loan is backed by the borrower’s collateral. Collateral can be the borrower’s home, automobile, business and land. Secured Loans have a lower interest rate.
- Unsecured Loans. A Unsecured Loan does not require borrower’s collateral. Unsecured Loans have a higher interest rate and are generally quicker to process with less paperwork.
Lending Institutions who offer these loans are: Banks, Credit Unions and Reputable Online Lending Companies.
There are a few questions and thoughts that any borrower should consider with these loans.
What type of loan is the best loan to fit the borrower’s needs? (Secured versus Unsecured).
Total payment amounts and interest paid.
Borrower’s credit history: good credit enables a better interest rate and loan terms. Poor credit may disqualify the borrower and if qualified, the interest rate and payments are higher. A personal loan for people with bad credit will almost always be coupled with high interest rates, even if secured.Is this loan needed for an emergency? Unexpected high medical bills, car repairs or other debt that cannot be paid in cash immediately? A borrower needs to take careful consideration with Personal Loans.
Borrower’s should always shop around with different Lenders and compare loans and rates. A good credit risk borrower can have Lender’s compete for their business.
Borrower’s should be aware of any fees and options, if applicable, to the loan. Making sure these fees and options are explained up front before committing to this loan.
Read all fine print on loan documents. Ask questions on what doesn’t make sense in the fine print, making sure it is explained thoroughly. Finally. Trust gut instinct. Walk away from loans that sound to good to be true. They usually are!
This article was brought to you by All About Finances!
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