subject: Personal Loans For Dummies [print this page] Personal loans (also called private loans) are money you borrow for private use from a lender. It can either be from and investment broker, a bank or a private lending company. You can find personal loans either on the internet or in your town.
You can use personal loans for a range of need like vehicle repairs, medical expenses, vacation, education or home repairs. They can also be used to pay legal bills and even debt consolidation.
The average personal loan maximum is $15,000. The amount you are eligible for will depend on the lending institutions guidelines for such loans, your income, and your overall credit rating.
Often a personal loan is confused with a line of credit; and is absolutely not the same. The major difference is that when you raise a personal loan, you will be paid a sum of money by the lender. A line of credit is somehow similar, but in this case you can access your funds up to your credit line; and you can decide only to access what you need.
Personal loans can be either secured or unsecured. Secured loans mean you will offer the lender some type of collateral that they can claim in the event you don't repay the loan. This can be a vehicle, land, or other asset you own. Unsecured personal loans mean there is no collateral. The interest rates for unsecured loans are higher because there is a greater risk of non-payment.
The normal terms of a personal loan are one to five years. The lender itself and the amount of money does also impact the terms. You should always be sure that you understand the terms before you accept the loan.
While a longer loan term will result in lower payments, you will end up paying more for the loan over the life of it due to the amount of interest. Keeping that in mind, only borrow the amount you need for your specific purpose and pay it back as quickly as you can. Make sure the set monthly payment is something within your reach on a regular basis so you are not likely to default on the loan.
The most common use of a personal loan is to consolidate other debts. This is a great way to have one monthly payment and reduce your monthly expenses. However, this scenario only works if you are willing to set a budget and life within the boundaries of it. Too often, a person who gets a personal loan to consolidate their debt racks up huge debt again quickly. Then they not only have that debt to pay again, but now they have a personal loan payment to meet each month as well.
If you think you are in the risk to do that, it could be a good idea to enroll in a debt management course. There are normally for free and can be taken in a non-profit credit counseling centers.
A private loan is a great access to quick money. It is very simple to apply for it. Normally you will only have to verify residence, income and employment before the lender will hand you a credit check. It is even possible to qualify for a personal loan if you have no established credit or bad credit. In the last case you must be prepared to present some kind of collateral and pay higher interest rates.
