Personal Loan – Important Things for First Time Borrowers
A personal loan is the lump sum amount of money you borrow from a bank or a lending institution
. Personal Loans are usually meant to make arrangement for unforeseen expenses. These loans are also good options for people who wish to consolidate different debts into one. Though, they can be borrowed for any general expense purpose.
A number of factors affect the overall cost of personal loan borrowed by an individual. These include:
Amount of money you want to borrow as the personal loan.
The rate of interest levied on the personal loan amount.
The duration for which the personal loan is borrowed.
The type of security or collateral you have.
Types of Personal Loan
There are different types of personal loan and you must evaluate each of the options before choosing one. Here are some of the most common types of personal loan:
Secured Loan: As the name suggests, a secured personal loan is borrowed against security or collateral. Lenders are more comfortable lending secured loans as they offer less risk for the lender in case the borrower defaults. Homes, cars and land pieces are some of the common collaterals used to borrow secured loans. The borrower enjoys the benefit of lower interest rate with secured loans.
Unsecured Loan: Unsecured Personal Loans work exactly opposite to the secured loans. The borrower doesn't need to have collateral to borrow these loans. Moreover, these loans are processed faster than the secured loans. However, rate of interest is higher in case of unsecured loans. Another disadvantage is that the amount borrowed this way is less as compared to secured loans.
Short Term Personal Loan: These are loans borrowed by an individual for a short period of time. Short term Personal Loans have high rate of interest and limited amount of money can be borrowed. Moreover, the lenders require the borrower to possess collateral for these loans.
Cash Advance Loan: Also known as payday loans, these loans are available for short term of 30 days. They are fast processed and can be borrowed to meet emergency expenses that can't be postponed till the payday.
Line of Credit: These loans allow a borrower to borrow and payback the principal and interest amount without paying back the debt in full. A line of credit is set and the borrower must pay the whole debt before the credit line expires.
You need a reliable lender to obtain a good personal loan deal. Search online and compare the rates offered by different lenders to find the best deal.
Personal Loan Important Things for First Time Borrowers