The personal loan is borrowed to meet the unforeseen expenses. You are at risk, if you have the habit of using personal loans to meet needless expenses. If the expense can wait till you get the required amount on your own, then what is the need of personal loan.
Before taking any personal loan you should ask yourself following questions:
- Do I really need it?
- Can I manage without a personal loan?
- Is it for a frivolous expense- like a holiday- that I could really avoid?
- Is it possible that I could secure the money by other means- like borrowing from a relative, taking up a part time job, sale of an asset? If you can avoid it, then don’t take the monkey on your back!
Then you should decide on certain factors because a personal loan vary according to them such as:
* The amount that is to be borrowed
* The rate of interest
* Whether it is a fixed or a variable rate of interest
* Loan repayment term( in months or years)
* The down payment or deposit
* The associated fees or costs- broker fees, prepayment fees, origination fees.
* The insurance that the lender would require
In other words, you are buying a sum of money for more than it would cost the lender. It would be insufficient to consider only the rate of interest before taking a personal loan. There are arrangements fees and penalties of prepayment that you would have to consider. Many of the “no-fee” credit lines carry with them a prepayment penalty. This is the way the lender/broker makes his profit. Please work out the total expenses of your small or big personal loan before signing up for the loan agreement.
Thereafter you should know about the types of personal loans. Personal Loans are of various types, mainly Secured Personal Loans and Unsecured Personal Loans.
Secured Personal Loans
These loans are given by the lender upon the pledge of collateral by the borrower to secure the loan- like property, or a car. Subsequently as the lender stands to recover his money if there is any default in repayment, the rate of interest charged on the loan is less.
Unsecured Personal Loans
Such loans are given to the borrower with no pledge of collateral or security. As the lender faces a very high risk of losing his money should the borrower default on repayment, the interest rate is quite high.
Unsecured Bad Credit Personal Loan
Here again the borrower with a history of bad credit rating is being given a loan without forwarding any collateral on his part. All the lender has is the borrower’s signed promise to repay the loan. Therefore such personal loans are also called signature loans. Signature loans would be issued in full entirety upon the receipt of a signed activation letter or a letter of commitment from the prospective borrower. Consequently to protect the lender’s money, the rate of interest charged would be high.
Guaranteed Personal Loan
A guaranteed personal loan comes with a requirement from the lender that the borrower must be having a certain level of income and a good credit rating. He should provide the lender with sufficient proof of his ability to make the repayment.
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