Personal loans are normally general purpose loans which can be borrowed from your bank or lender. Because term indicates, the loan amount can be used with the borrower’s discretion for ‘personal’ use including meeting an unexpected expenditure like hospital expenses, do it yourself or repairs, consolidating debt etc. or perhaps for expenses such as educational or going on a holiday. However aside from the proven fact that they’re very, very hard to acquire without meeting pre-requisite qualifications, there are many other critical indicators to understand personal loans.
1. They’re unsecured – so that you isn’t needed to set up a property as collateral upfront for the money. This can be one of many explanations why an unsecured loan is actually difficult to obtain since the lender cannot automatically lay claim to property or another asset in the event of default from the borrower. However, a lending institution may take other action like filing a lawsuit or getting a collection agency which on many occasions uses intimidating tactics like constant harassment although these are strictly illegal.
2. Loans are fixed – loans are fixed amounts in line with the lender’s income, borrowing background credit standing. Some banks however have pre-fixed amounts as personal loans.
3. Rates are fixed – the interest rates usually do not change for the duration of the loan. However, just like the pre-fixed loans, interest rates are based largely on credit score. So, the greater the rating the bottom the eye rate. Some loans have variable interest levels, that may be a drawback factor as payments can likely fluctuate with modifications in interest rates which makes it hard to manage payouts.
4. Repayment periods are fixed – personal bank loan repayments are scheduled over fixed periods which range from as few as Six to twelve months for smaller amounts if 5 to 10 years for larger amounts. Even though this may mean smaller monthly payouts, longer repayment periods automatically imply interest payouts tend to be more in comparison with shorter loan repayment periods. Sometimes, foreclosure of loans has a pre-payment penalty fee.
5. Affects credit ratings – lenders report loan account details to services that monitor credit scoring. In the case of default on monthly installments, credit scores may be affected reducing the chances of obtaining future loans or trying to get charge cards etc.
6. Beware of lenders who approve loans in spite of a poor credit history – many situations like this have proven to be scams where people having a bad credit history are persuaded to spend upfront commissions through wire transfer or cash deposit to secure the loan and who are using nothing in return.
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