Today, personal loans have become a very popular fund option. A personal loan is simply a loan that is issued to a person for any type of personal reason. There are many different reasons that a person may need money, sometimes on very short notice. Common reasons include: emergency expenses, debt consolidation, automotive purchases, business purposes, and for medical expenses.
There are three different types of personal loans available through lenders today: secured, unsecured, and lines of credit. Secured loans require the borrower to place some form of contractual up in exchange for receiving the funds. For example, if you are going to use your personal loan for the purchase of a new car, you would place the new car up as collateral. This gives the lender a bit of recourse should you default on the loan. The lender would then repossess the car and sell it to recoup their money. Unsecured lines of credit require no collateral at all to obtain. These loans can be a bit harder to get, and often come with strict terms and high interest rates. A line of credit is similar in terms to a credit card, as it allows the borrower to borrow and repay money from an approved, preset, spending limit.
When you find yourself in the situation of needing a bit of extra money, it is always recommended that you contact reputable financial institutions that you know. Unfortunately, especially with the recent economic difficulties, personal loans have become a breeding ground for unscrupulous people who have no intention of providing an honest loan. These people scam innocent borrowers in an already desperate time.
In order to protect yourself, you should be aware of what is required from reputable lenders to begin the loan application process. You will need to have recent pay stubs, w-2s, bank statements, and a credit history that shows your ability to make regular payments on time. If your credit rating is a bit lacking, you may also need a co-signer. The same information will be required from your co-signer as well.
Even though there are three types of personal loans to choose from (as described above), certain loan amounts, or individuals with certain credit ratings, may only be issued funds in a secured fashion. This is to help protect the lender and restrict some of the terms since the loan will be solely for personal use.
When setting out to apply for a personal loan, you should first determine exactly how much money you need to borrow. As temptation as it may be to take extra money, keep in mind this will affect your monthly payments, interest rates, and length of the loan. Opting for an amount that is too high can lead to debt problems or an inability to keep up with payments to repay the loan. Once you have determined the loan amount, take your time and shop around. Compare lenders, terms, fees, and interest rates. Keep in mind the fact that lenders are competitive to get your business. Do not be afraid to speak up and ask for a lower rate, or tell others that you are shopping around and have received lower offers. Verify whether the interest rate will be fixed or variable, what happens if you miss a payment or are late with a payment, and what type of account fees are associated with the account. Some loans offer low interest rates for an introductory period, after which time the rates can sky rocket to as much as thirty percent.
The funds from personal loans should always be used carefully. Do not take out a loan to pay for something you really do not need to have, or to pay regular bills. This will just cause you to take on an additional form of debt that will absolutely need to be repaid, and could end up costing you much more in the long run.