The Definition of Personal Loan
If you are like most ordinary people today, at some point in your life you will need
money that you just don’t have, for car repairs, medical bills, school supplies for your
children, etc. You can always rely on your credit cards, but who wants to pay those
extremely high interest rates and fees? There is a better option, referred to as a personal
loan. The money that you receive from a personal loan can be used to cover all kinds of
expenses, anyway you like, just keep in mind, that you do have to pay the money you
borrow back, plus interest. There are many places to obtain a personal loan from, local
banks and loan companies, as well as internet lenders. Personal loans can bail you out of
a fix, as long as you don’t borrow more than you can pay back, and you shop around for a
good rate and repayment plan.
The average person, with a full-time job and decent credit, can borrow as much as
$15,000 in the form of a personal loan. Don’t try to get the max you can, just get enough
to see you through, because again, you will have to make those monthly payments, and
the more you borrow, the higher those payments will be. Personal loans are different
from lines of credit often available to you through your bank. The money you take out
with a personal loan is given to you all at once, and you will not be able to get more until
you have paid off a significant portion of your debt. With lines of credit, you are given a
certain limit, and you can withdraw funds until you have reached that limit, pay the
balance down, and get more funds as needed.
Again, depending on your credit, the amount of money you need, and your income, your
personal loan may be either unsecured or secured. If your loan is unsecured, there is no
property listed as collateral, but you will likely have to pay a much higher interest rate,
due to the risk the lender is taking by giving you an unsecured loan. If you fail to pay the
money back, they have no property to take from you to go towards the remaining balance
that you owe, meaning that they will have to go through the legal process to get their
money. If you have a secured personal loan, some piece of property that you own, such as
your vehicle, land, home, etc., is listed as collateral, and if you default on the loan, the
lender has the legal right to claim that property as repayment.
Your repayment time varies from loan to loan, in some cases, you will be given up to five
years to payoff your debt entirely, and in others, you may only have a year. It depends on
the policies of your lender, and how much money they are lending to you. The longer you
stretch your repayment period out, the more you will be paying towards interest, so keep
that in mind. Don’t accept a loan with payments that you can’t afford to make just to get
lower interest, but don’t accept the longest term if you can afford otherwise. If you don’t
fully understand the personal loan process, you should take the time to look into it, before
you sign any paperwork, so you don’t end up in financial trouble.
Many people use the money obtained from personal loans to pay off high interest debts,
such as credit card bills. You can save money in this manner, and it will be much easier
for you to only have to worry about making one payment, rather than juggling several
payments and due dates. Just don’t make the mistake of taking a personal loan to get
yourself out of debt, and then turn around and amass even more debt, as this is how many
people end up with bad credit and in bankruptcy. You have to take control of yourself,
and resist the temptation to go into debt, payoff your cards and cut them up, and toss the
applications you get in the mail immediately into the shredder, so you aren’t tempted to
send them in. Credit cards are not a necessity, especially not now with so many prepaid
cards and debit cards available, which can be used to rent cars, make airline reservations,
etc.
Hopefully, you now understand personal loans, and a little bit more about how they work.
Make certain that you check the interest rate, and make certain that you can afford the
monthly payments, before you sign on the dotted line.
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