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.

There are many financial institutions that provide both secured and unsecured personal loans. Depending on the borrower’s needs and financial situation, the loans can be a viable option. For instance, there are some institutions designed to simply solve debt problems and will have loans that can consolidate the debt at a reasonable rate of interest.

READ  Payday Lender Advertisement Practices Are Under Fire

If a borrower is able to obtain a more favorable rate of on a personal loan compared to having outstanding credit card debt, then it is in the borrowers best interest to take out a personal loan. The largest variable that is most important in loan is naturally the rate of interest and if the borrower is able to make monthly payments to the lender.

The terms of the loan can vary, but in general unsecured personal loans range from about 1 to 4-years. Depending on the type of collateral pledged, secured personal loans tend to be offered with a longer term and a better rate of interest. Automobiles generally are provide from 3 to 6-years, whereas home equity lines of credit can be much longer. The type of loan agreed upon and the particular guidelines of the bank determine the rate of interest. Generally speaking banks rates are fairly close to each other, but shopping around for the best rate is always a wise idea.