The Basics of Personal Loans

There are various types of loans available in the market today, but most of such loans are made accessible for predetermined and specialized purposes like mortgage and auto loans. Such crediting targets a particular clientele and is rigid in terms of their objective use. However, our financial needs don’t always fall within the boundaries of such predefined purposes.

For such situations, the most useful type of borrowing available is known as personal loan. There is more than one reputable personal loans company present in the market today. These companies extend such crediting to individuals who are facing any sudden and unprecedented expenditure e.g. a medical bill, academic course fee etc. Yet, under such a plan the reason for borrowing is solely the borrower’s discretion and no one else’s.

From the name itself it is clear that this kind of credit flow is useful for meeting any personal financial need. But there are a few more essential points one needs to know about personal loans before applying for it. Following are 4 such fundamental points.

• Nature – This form of crediting is available broadly in two forms. These are as listed below:

1.    Close-end personal loan – This is a onetime borrowing of a predetermined amount along with a prefixed interest rate as well as a repayment time frame. The interest rate and the repayment time frame are dependent on the amount being borrowed. However, there is no hard and fast lock in period, and the borrowers have the freedom of repaying their loan earlier than the scheduled time by making larger payments.
2.     Personal line of credit– This variety of cash flow allows an individual to obtain crediting within a particular ceiling but the repayment can be done at the borrower’s ease. This is more flexible than the previous type, but borrowers have often gotten into trouble with this sort of financing as it makes a sizeable sum of cash accessible suddenly without any immediate need of paying it off. Thus, such borrowings must be managed carefully.

• Collateral– A collateral is a security that a borrower has to provide to the lender institution or agent against the financing received. Personal loans are issued both with and without the use of collateral and accordingly they are called secured or unsecured loans. These are as follows:

1.       Secured – This variety of financing allows the borrower to obtain crediting from a bank or credit union against a security or collateral. This implies that the customer has to sign over, into a contract, any physical property that he/she owns to the lender, against the crediting obtained. This reduces the lender’s risk as if in any case the borrower misses out on the timely repayment of the whole amount, the collateral can be seized by the lender and used to cut his losses. Because of the presence of this assurance the interest rate to be charged becomes highly negotiable. Thus it becomes crucial that the borrowers make sure beforehand they can repay back the loan on time, as otherwise this would mean the forfeiture of their collateral.
2.       Unsecured – This is the opposite of the above mentioned type. Here the risk is shifted from the borrower to the lender, as there no assurance or security is present in the form of collateral in case the borrower is unable to pay back. Thus the interest charged here is way higher than in the case of secured personal loans. Therefore, in this case the client must confirm the amount he needs and can afford. Because if the amount borrowed surpasses his repayment capability, then not only will they experience a financial setback, but his credit rating will also be adversely affected.

Thus, one needs to look into all these points before deciding which plan suits his/her needs the most.

Author’s Bio – Sam Payn is an online loan industry blogger. From reputable personal loans company to non-reputed one – he writes for all online personal loan lenders.  

 

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Category: Loans