Do you know the personal loan basics? What are personal loans? Personal loan is an all-purpose loan. The borrower uses it for whatever he chooses. However, many lenders will follow up to guide you on how to use the loan. Sometimes when compared to credit cards, they are harder to get.
Personal Loan Basics : General Use
Here are some reasons why an individual may need personal loan :
- Major events: This may include weddings, funerals and any other important event
- Debt consolidation: An individual may need this loan to pay off credit cards or other debts
- College: An individual may need this loan for a college degree.
- Unexpected expenses.
This is an unsecured loan, it does not need a collateral. It also means that the lender cannot hold you responsible if you fail to pay your debt. However, personal loan lenders can take other collection actions such as hiring a collection agency and suing you. They can report to credit bureaus about late payments.
Personal Loan Basics : Fixed Amounts
Personal loans may range from $1,000 to $50,000, based on your lender, your income, your other debt, and your credit score. This means that if your credit score is high with a high income, you can borrow a large sum.
However, some banks do not allow customers to borrow more than a specific limit no matter how good their credits are. For personal loans, payments toward the loan reduce the balance, but they do not open up more available credit for you to borrow more.
Personal Loan Basics : Interests And Fees
The interest rate on a personal loan is fixed throughout the loan period. But some personal loans have changing interest rates. Variable interest rates can spoil your payments and make your efforts look futile when they increase.
Additionally, Interest rates on loans are highly dependent on your credit score. The better your credit score, the lower the interest rate. Many lenders charge late fees if your payments come late. Some as well charge origination fees to set up the loan.
Personal Loan Basics : Repayment
There is usually a time frame to pay your debt. The range is usually 12, 24, 36, 48, or 60 months. However, when the repayment period is longer you will incur more interest charge.
You can easily get a loan from your bank or a credit union. This is because you have already built a relationship with them. They know the person borrowing from them. However, they will ask you how you intend to use the money.
It you want to borrow, borrow only what you can afford to repay. Be sure that the firm is genuine. Carefully review the terms and conditions. Calculate your monthly payments and how to go about them. If the interest rate is high or too high, try another lender. It is important to note that your loan information goes to the credit bureaus and become part of your credit report, like any other loan.
Common Rates and Terms
Each lender or bank has its own terms and conditions. Do not expect all to be the same. It has also been discovered that banks and credit unions give good rates, even though many online lenders give better terms, especially for those with very good credit. Note that many online lenders are also fraudsters. Check very well before borrowing.