A personal loan is a sum that any adult individual borrows to
fulfill his financial requirements. There are many purposes for which
any individual can take a personal loan. Personal loans can be used to
provide funds to buy a car, pay for your dream cruise or that remote
island escapade, buy a boat, pay mortgage arrears, finance your home
improvement plans, payment of alimony or paying for credit card bills
etc. In fact personal loans can be taken for most of the financial
emergencies you can think of.
There are many banks and financial
institutions, which provide personal loans. All of them have their own
terms and conditions. To get the best deal on your personal loan you
must ensure that you contact and consult as many lending institutions as
possible. Tell them about your financial requirements and situation.
Get quotes from them and check whether you can repay the personal loan
with ease.
The banks will provide you with a lump sum amount when
you complete the formalities of getting the loan. The money can be used
to fund your requirements. The amount banks will recover from you will
include the debt, coupled with the interest charged on it over the
repayment period. The longer the repayment term the less will be the
interest to be paid on the personal loan.
Personal loans
[http://www.easyfinance4u.com/secured_personal_loan.html] are preferred
due to their flexibility. The two most common types of personal loans
are secured and unsecured personal loans. The option of secured and
unsecured personal loans are linked to the fact whether you can offer
any property or fixed asset as collateral for the loan. These loans are
discussed below in detail.
Secured personal loan
A loan
secured against some immovable or movable asset is called a secured
loan. These loans are easy to get since the lending institutions feel
comfortable while giving them. The reason for their comfort is the
collateral you provide. Secured personal loans have lower interests and
easy repayment options. Lending institutions don’t hesitate in giving a
large loan against high value collateral. Generally, secured personal
loans are given against house owned by a person, but if you have put
your house on mortgage you can still avail a secured personal loan
against the proportion of the home you own.
Banks and financial
institutions often overlook negative credit ratings, CCJ, defaults or
pending debts since they get collateral for their loan. Secured personal
loans are available to individuals within 30 days of giving an
application.
Unsecured Personal Loan
In an unsecured personal
loan the amount given by the bank or financial institution is not
secured by collateral. The lending institution gives the loan solely on
the creditworthiness of the person concerned. This type of loan has a
greater element of risk for the lenders, so it carries a greater rate of
interest and is often followed by a through background check on the
financial soundness of the individual. The loan amount can start from as
little as �500 and go up to �25,000. Since the loan is unsecured,
lenders are wary of giving large amounts as loans. Unsecured personal
loan is good for tenants, people who don't own their homes and those who
cannot offer anything as collateral.
In case the borrower
defaults on payments then the lender will use the credit agreement and
take legal help in recovering the outstanding amount.
Before
jumping to a decision, the interest rate charged should be given a
serious look while taking a personal loan. The amount of interest you
will be charged, will decide what you finally pay to the bank. Lenders
have a legal obligation to tell you the interest they will charge on
your loan. The APR (Annual Percentage Rate) shows the real interest rate
the banks will charge from you. The lower the APR, the better it will
be for the borrower. The borrower is also advised to investigate whether
the interest charged by banks is fixed, or a floating one. Ask the bank
about prepayment penalties and other cost incurred in getting a loan.
Every
financial institution has its own way of enquiring about the borrowers.
Some might want to ask personal questions, get a feel of what you will
do with the loan amount and how you wish to build your future before
lending you anything. Be prepared to answer such queries.
Every
loan that is taken has to be repaid. The banks and financial
institutions derive part of their profits by the interest you pay. It is
fine if everything goes as planned, and you repay the entire loan in
due course with no hiccups. However life is known for its glorious
uncertainties. Plans fail, calamities come and something disastrous
often thwarts our plans. This might lead to repayment problems. This
happens and one should not get panicky in such situations. If you get
into one such situation, the first thing that you should do is to talk
to your lender. They are interested in recovering their money, a
mutually agreeable solution can be reached, which is less tense for you
to manage and appears promising to lenders also.