here is a wide array of reasons why you would want to borrow some money from a bank or any money lending entity. However, unlike in a standard loan where you have a specific reason for borrowing money (for example in a car loan – you get a car loan for buying a car) you obtain a personal loan for almost any purpose.
In a personal loan, one borrows an amount of money for a specified period at a fixed interest rate and pays a fixed monthly payment. There are secured personal loans, but unsecured ones are the ones more often used.
Secured personal loans will require some collateral for security on the part of the lender, whether in the form of a down payment or some other asset. Unsecured personal loans, on the other hand, do not require any. Consequently, interest rates on secured personal loans are lower compared to unsecured personal loans. Higher risk for non-payment is imposed on the part of the lender in unsecured loans, thus the higher rates. Moreover, because of these higher interest rates, the overall cost of the loan also becomes higher. As the interest on unsecured loans not being tax deductible, the interest rates also become higher compared to other kinds of loans.
A personal loan can be used for anything you desire, either it is for a routine you have, such as paying your electric and water bills, or something that you did not expect to happen like an expense for your car breaking suddenly down, or for the medical payment of a family member being hospitalised. It can also be for something you are planning in the future – to meet your expenses for educational aid, a grandeur wedding, a house and lot purchase, or a luxurious vacation. Your personal loan can also be for clearing a debt you previously acquired, or for the consolidation of your other credit commitments, as personal loans provide you with lower rates compared to the rates which credit card companies generally impose.
The amount of money lent to a borrower shall depend on the lending institution and your personal credit rating, as well as other considerations like the duration of the loan, credit history, and purpose for using the money, and sometimes, a borrower’s relationship with a particular financial institution or lender. It is a fact that personal loan is for someone with a good credit rating. The better your credit rating is, the larger the money you can borrow. Also, just like the amount, the better your credit rating is, the lower are the interest rates imposed on your borrowed money.
Personal loans, from the word itself, are used for any personal need that one may have. Essentially, it is easier to apply for this kind of loan than other types of loans. A borrower only has to take precautions in getting personal loans and consider the imposition of higher interest rates, higher costs, and they are not subjected to tax deductions and their strict repayment schedules. Nonetheless, personal loans provide you with a financial resource during the good and bad times of your life.