Before opting for a personal loan, you need to know what it exactly is, it’s various types and how it can benefit you. A personal loan can be defined simply as a lump sum borrowed from a certified lender and which could be used for consolidating all debts into one.
People usually take up personal loans to help consolidate all their credit debts, for which they have to repay to different companies on monthly basis. It becomes a hectic routine and sometimes get out of hand. In comes personal loan with it’s various types such as short term loans, secured, unsecured, fast cash, no credit loans, military loans, Christian personal loans and many other. These personal loans sometimes have their own various interest rates, and people opt for that which is most suiting their needs. However, all the loans summarize up in to two categories, the Secured and the Unsecured loans.
In a secured loan, you need to have a collateral. Now what is a collateral? It is usually an asset who’s holding rights are given to the lender. In case you default on the re-payment of the loan, then the asset will be taken in place of that amount. The collateral is usually something that has a high value rate, in most cases, your home.
Lenders need to do this in case of people who have a risky credit history, so that if in case the borrower defaults again, the lender may not risk on loosing that particular amount.
This loan is the opposite of a secured loan. You do not have to provide any collateral and usually people with good credit history are often able to secure this loan. However, the lender also makes it up with charging high interest. The reason being unsecured loans also a high risk factor for the lender. If in any case you would fail to make regular payments, the lender can create legal issues for you and also get legal claims where goods could be taken away to make up the loss incurred.
For people having a good credit rating, these loans may be easy to apply, but for those with a bad credit score, it may become a very challenging task. Before giving out the loans, lenders often conduct a credit rating check that includes previous records of defaults in payments, accumulated mortgage, rejection of credit applications and virtually every credit dealing/problems that you ever had. Once you do get approved for a loan, ensure that you go through the terms and conditions carefully or better yet get professional consultation and understand the pros and cons of obtaining the personal loan. Ensure that the interest rates are payable by you, if you choose the unsecured loans.
by Gemma Maddock