Personal loan is a short term loan granted to individual consumers for personal, household and family use. They are not given for any sort of commercial or business use, and can be used for a variety of personal needs. It can cover medical expenses, travel or vacation expenses, household expenses, education expenses, marriage expenses and any reasonable personal expenses. Mortgage loans are sometimes classified as personal, although personal loans are advanced for shorter periods than mortgage – usually five years and below. The loan has gained popularity among many borrowers since they can easily sort their financial needs through the cash advance.
The amount of loan that can be granted to an individual differs in size, terms and conditions and dimensions. However, personal loan can be broadly categorized into two types; secured and unsecured personal loans. Unsecured or signature loans are granted without any collateral security attached. The lender relies on the credit history of the borrower and his ability to repay from his income. They rely on the fact that the borrower will make good of his promise to repay the loan within the stipulated time. Because of the high level of risks involved with the advancement of this loan, the lenders tend to charge high interest rates. This is to cover the risks and encourage the borrower to repay back faster before the interest accumulates to larger amounts. In case a borrower defaults in payment, the lender may withdraw the loan agreement and file a legal suit against the borrower.
Secured loans, on the other hand, are advanced with collateral security against the amount borrowed. The security is usually the item purchased using the loan, or in other cases the borrower’s property or asset assigned by him as collateral. Secured personal loans can also be granted with a guarantor as security, who co-signs the loan agreement. When one defaults in repayment, the lender has a legal right to take full possession of the secured asset and sell it for the recovery of the outstanding loan balance. Most secured personal loans are advanced for the purchase of valuable assets like motor vehicles or valuable business equipment. These loans offer low risk chances to lenders and therefore are always easy to acquire because the lender has something to cover for any default. Furthermore, the interest rates are relatively low compared to the unsecured loan.
The option of personal loans is a consideration for many individuals when planning their personal finances. It depends with the budget at hand and the time period required for its implementation. Although personal loans are good alternatives to individuals requiring sums of money within a short period, it is always good to relate the benefits you would gain against the consequences associated. It is important to explore all other available avenues before deciding to apply for the loan. Given the short term nature of these loans, the interest rate charges are always high as compared to other available loan options. Repayment of personal loans is usually through fixed installment amounts, payable within a specified period of time. The decision to take a personal loan should make you better off than if you had not. The loan has both positive and negative aspects, which must be analyzed and understood before any decision is made.