Personal loans are all-purpose loans that banks provide. You can use this kind of loan for things such as unexpected expenses, unconsolidated debt and home improvement projects. There are unsecured as well as secured personal loans.
The borrower doesn’t have to give any asset as collateral for unsecured loans. This means the lender can’t take your property if you default payment. The lender has no property to claim in case you can’t complete repaying the loan. The lender, however, can try other collection actions. This includes reporting you to credit bureaus, filing a lawsuit against you and using a collection agency.
On the other hand, a secured loan is backed by an asset. If you can’t pay back your personal loan, the lender can seize your asset as payment. Items provided as collateral can include houses, cars, business assets and land title deeds.
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The range for personal loans is between $1,000 and $50,000. The personal loan amount you get depends on your income, the lender and your credit rating. If your credit score is good and you have a large income, you can borrow more money.
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Personal loans come with fixed interest rates. The interest rates are determined by the credit rating. If you credit score is excellent, you may receive reduced interest rates. This means that you won’t pay much on top of what you borrowed. A number of personal loans contain variable interest rates. Thus, the interest rate changes from time to time causing your payment to fluctuate. It’s harder to budget for a personal loan that comes with an unpredictable interest rate.
There’s usually a fixed repayment time for personal loans. The loan period is provided in months. For instance, you can be required to pay in 60, 48, 36, 24, or 12 months. Sometimes, the interest rate is based on the repayment period. Often, interest rates increase if the repayment periods are longer. You can also get a pre-payment penalty. This refers to a fee charged for early loan repayment. Don’t go for loans with pre-payment penalties.
Most banks report their customers’ loan account details to credit bureaus. The loan account details include your credit score. Every aspect of the loan application process has an effect on your credit. To maintain an excellent credit score, repay your loans within the stipulated time.
Beware of additional or hidden fees and scams when applying for loans. Don’t get a loan from a lender that asks you to send money so you can secure a loan. Also, some lenders charge added fees for their services. Therefore, it’s wise to check for additional fees prior to taking a loan. Read the terms and conditions of the loan carefully to identify any hidden or extra charges.