What You Need to Know About Personal Loans
Personal loans are multipurpose loans that banks offer. You can use this kind of loan for things such as unexpected expenses, unconsolidated debt and home improvement projects. There are unsecured personal loans and secured personal loans.
For unsecured loans, the borrower doesn’t need to provide any asset as collateral. This means that, if you default payment, the lender can’t seize your property. 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.
A secured loan, on the flip side, is supported by an asset. If you can’t pay back your personal loan, the lender can seize your asset as payment. Items offered as collateral may include cars, houses, land title deeds and business assets.
Personal loans range between $1,000 and $50,000. The personal loan amount you get depends on your income, the lender and your credit rating. You have access to more cash if you have a huge income and an excellent credit score.
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. Hence, your payment fluctuates because the interest rate changes periodically. It’s harder to budget for a personal loan that comes with an unpredictable interest rate.
Usually, there’s a fixed repayment period for personal loans. The loan period is given 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, longer repayment periods increase interest rates. Additionally, you can receive a pre-payment penalty. This is a fee levied for paying the loan before time. Avoid personal loans that come with pre-payment penalties.
Most banks report their customers’ loan account details to credit bureaus. The loan account details include your credit score. Every step in the loan application process affects your credit. To maintain a good credit score, make your loan payments on time.
When applying for loans, check for any hidden or additional fees and scams. Don’t get a loan from a lender that asks you to send money so you can secure a loan. Additionally, a number of lenders charge extra fees for their services. Therefore, it’s a good thing to look out for extra fees before you take a loan. Carefully read the loan’s terms and conditions to find out any additional or extra charges.
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