Loans are usually self-explanatory. auto loans are for buying a car, student loans are for paying school tuition, and so forth. But what types of loans which aren’t so transparent? What exactly is a personal loan, for example, who can get it and for what exact reasons?
A personal loan is fundamentally an unsecured loan, or simply a loan that you need not put up collateral or a down payment for as a requirement for receiving funds. You can get a personal loan from different types of financial institutions, from top-tier banks to lending companies to individual investors and the like. In any case, do shop around before applying for this type of loan as interest rates, terms and other details can vary significantly from among providers.
So how does a personal loan work?
The good news is, it’s rather simple. Once you have applied and received approval, you’ll get the money you asked to borrow in a lump sum deposited in your bank account. Then you are expected to repay that loan in installments. How long you should be able to complete those payments rests entirely on the terms that the provider has predetermined.
On the other hand, how much interest you pay will usually depend on your credit score. The better your score, the lower your interest will likely be. A good rate will offer savings while you repay your debt since you’ll be asked to pay a lower interest rate.
Always go for a fixed-rate loan so that you pay a fixed interest rate throughout the entire term of your loan. It is crucial that all of these details are clearly stated in your loan contract. Even more vital is that you read the entire document exhaustively, paying attention even to the most minor details before you sign the dotted line.
Should you have questions, do ask the loan officer so you can make a more informed decision.
Below are items you have to be absolutely sure of before getting a personal loan:
> Interest rate > APR
> Origination fee
> Loan terms
> Whether interest is fixed or variable
> Other things that might be included in the loan
> Prepayment fees, if any
> Late payment fees
Most definitely, it is important to know as much as you can about personal loans before applying for one. More information means you can decide more wisely as to which type of loan and which loan provider is the best for you. Remember, which you will surely find several out there, no two of them are exactly alike. As always, do your homework.