Personal Loans

Personal loans refers to loans provided by lending institutions to private individuals for personal reasons. These loans may be used to finance nearly anything. The variety of ways in which you can use personalloans is endless.

They can be used for any of the following and more!

. Home Improvement

. Automobile Purchase

. Shopping Spree

. Debt Consolidation . Vacation

. Education . Medical Expenses

. Wedding

. Relocation

. Cash Emergency

. Payment of Credit Card Bills

. Furniture Purchase

Usually the lender is not interested in how you use it. His only concern is about how you will repay him. Better go for low interest personal loan.

Personalloans is the generic term for all loan types; within this there are various categories.

Loans are of two types - secured and unsecured. Secured loans require collateral such as a home, business assets, stocks, bonds etc. You can secure a higher loan amount at lower interest rates. This is the best personal loan.

Unsecured loans do not require any collateral. These are suitable for people who cannot provide collateral. Because of the risk involved, the loan amount is lower and interest rate, higher in this type of personal bank loan.

Besides these two broad categories, there are a number of different loan types available:

Fixed Loans: This loan type is repaid each month with a fixed rate of interest. The rate remains the same throughout the loan term and is not affected by market conditions.

Variable Loans: This refers to loans that allows the lender to make periodic adjustments in the interest rate according to the market conditions.

Installment Loan: Here, you repay the amount borrowed, plus interest, in monthly installments over a predetermined period.

Share Secured Loan: In this loan type, you can borrow any amount of money by using

your savings or share certificate account as collateral. By applying for this loan, you agree to freeze the funds in one of these accounts. Even though you cannot withdraw these funds until you repay your loan, you continue to earn dividends on them.

Balloon Loan: You make periodic installment payments, with one large payment due at the end of the term. Everyday 04_3

Line of Credit: An arrangement in which a bank or vendor extends a specified amount of unsecured credit to a specified borrower for a specified period. This type of loan works similar to a credit card. However, the full amount of the loan must be paid back by the date specified by the lender.

Single Payment Loan: In this loan type, you repay the entire loan plus interest at a predetermined date in the future.

Cash Advance Loan / Payday Loan: Payday loans are small short-term, unsecured loans intended to bridge the borrower's cashflow gap between paydays. They are repaid out of the next paycheck or regular income payment. It requires no credit check.

Advantages:

Personal loans have their own merits such as:

» Easy to apply

» Convenient

» Quick processing

» Useful for emergencies

» Highly flexible

» Cure for financial woes

» Used for self certification of earnings

» Can borrow higher LTV multiples

» Debt consolidation

» The lender is not bothered with what you need the money for

» Unsecured loans require no collateral

» Repayment of the personal loan will improve credit history

Disadvantages

» Penalty for prepayment

» Easy to squander

» Lenders are stringent

» Hidden fees in the overall loan

» If payments on secured loans are not made, you may lose the collateral

» Unsecured loans have higher rate of interest

Sources

Once you decide to take out a personal loan, you need to decide on where to go for the loan. There are a lot of financing options available in today’s world. Based on your need, you can choose one of the possibilities:

Banks: Banks are the first location most prospective borrowers examine. But banks usually are very cautious about personal loans; they do not wish to indulge in such a risky venture. Loans for small amounts will not be approved by most banks.

Credit Unions: Credit unions are a much better option, compared to banks. They are more likely to offer unsecured personal loans for smaller amounts with better interest rates and terms. But they may force you to open an account with them before processing your request.

Payday Loan Providers: Payday loans are the best option to help in temporarily alleviating financial worries. The borrower normally writes a post-dated cheque including the amount plus a sizable fee for interest to the company extending credit to you. The cheque will be cashed on your next payday. While this type of loan may seem like an ideal option, but with the high rates of interest accompanying it, you need to think twice before going in for this loan.

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