Invested Credit

signing a loanA personal loan is when an individual borrows an amount of capital for personal use from a financial institution. The borrower is able to use the cash for anything they want, such as new car, perhaps some home improvements consolidating bills or a vacation.

People who take out a personal loan is required to make monthly payments to the borrower, repaying the principal plus the interest accrued on the loan. Personal loans provide borrowers the flexibility of being able to make purchases while not accumulating the funds first. Many financial lenders are able to offer several types of personal loans, with the main difference being the interest rate as to whether it is fixed or floating.

Personal loans fall under two categories, unsecured or secured. A secured loan is when an asset is pledged by the borrower, providing a piece of collateral in exchange for the loan and a more favorable rate. If the borrower is unable to pay off the principal and interest and effectively defaults on the loan, the bank offering personal loans has the legal right to take possession of the asset.

An unsecured is different in that there is no asset put up as collateral. The terms of the loan agreement are determined by the creditworthiness of the borrower. If an individual winds up defaulting on the loan the financial institution has the right to take legal action against the borrower. Normally, both the interest and the principal must be paid in order for the debt to be satisfied. Read the rest of this entry »