Personal Loans are typically general purpose loans which can be borrowed from a bank or financial institution. As the term indicates, the amount of the loan may be used at the borrower’s discretion for’personal’ use such as meeting an unexpected expenditure like hospital expenses, home improvement or repairs, consolidating debt etc. or even for expenditures like educational or going to a vacation. But besides the fact that these are quite difficult to obtain without fulfilling pre-requisite qualifications, there are a few other important aspects to know about personal loans.
1. They are unsecured – which means that the Borrower is not required to put up an asset as collateral upfront to obtain the loan. This is only one of many reasons why a private loan is difficult to obtain because the creditor cannot automatically lay claim to property or some other asset in case of default by the borrower. However, a lender can take other action like filing a lawsuit or hiring a collection agency that in many instances uses intimidating tactics like continuous harassment although these are strictly illegal.
2. Loan Amounts are fixed – personal loans are fixed amounts based on the lender’s income, borrowing history and credit rating. Some banks however have pre-fixed amounts as private loans.
3. Interest rates are So, the better the rating the lower the rate of interest. Some loans have variable interest rates, which is a drawback factor as payments can probably differ with changes in interest rates making it hard to handle payouts.
4. Repayment Periods are fixed – private loan repayments are scheduled over fixed intervals ranging from as little as 6 to 12 weeks for smaller amounts as long as 5 to 10 years for bigger amounts. Though this may mean smaller monthly premiums, longer repayment periods automatically mean that interest payouts are more when compared to shorter loan repayment periods. In some cases, foreclosure of loans includes a pre-payment penalty fee.
5. Affects credit scores – lenders report loan Account details to credit bureaus that track credit ratings. In the event of default on monthly payments, credit ratings can be affected reducing the chances of obtaining future loans or applying for credit cards .