The discretionary aspect of personal loans increases its attraction. You can use the loan in the way you want without having o commit about it. The loan injects quick cash to your kitty and it is up to you how it can be used. The loan comes most handy at times when you are inconvenienced by sudden need for extra money to meet some expenses that you had never expected at that time. Usually medical emergencies catch people on the wrong foot and there can be many other reasons, too. Often there is need for consolidating debts, in order to replace several other loans or credit with a single loan. Personal loan can be availed to make ends meets.
Credit scores are important
Personal loans are created for individuals according to their financial status. The better you are placed financially, high are the chances of getting the loan at very low interest. How well you manage your debts by making timely payments is reflected in the credit score and having a good credit score means you get the loan at very low interest. How well you are placed to make repayments is judged by your income that is also considered.
Most otherloans are usually granted against some assets that are treated as collateral security. When you take a car loan, the car is hypothecated to the lender. Similarly, for home loans or home equity line of credit, the house is pledged against the loan. However, personal loans are different and are also known as personal unsecured loan because it does not require any asset or similar security to be attached to it. This reduces the risk of borrowers.
Amounts are fixed
Personal loans are created with the purpose of providing some financial assistance at times of need. It is not meant to achieve bigger financial goals like car loans and home loans. The loan amount is thus fixed and kept within smaller limits between $1000 and $5000. However, the amount can change slightly depending on lenders and your financial status.
One time loan
Personal loans are different from credit card loans because it is a onetime loan. Unlike credit cards, you cannot keep borrowing again and again by the method of revolving credit. Only one loan is granted at a time and unless it has been paid up in full another loan is not given. Repayments of credit cards push up the credit limit but it does not happen for personal loans.
Personal loans usually carry fixed interest that is determined by evaluating four factors – borrower’s income, credit score, loan amount and tenure. Longer tenure entails higher interest and overall more repayment. Shorter tenure lowers the interest rate. However, variable interest rate for some personal loans is also available. The choice of fixed or variable interest would depend on the borrower.
When you take a personal loan, your credit score gets lowered. In order to regain the credit scores to its earlier good level, timely payments have to be ensured. A disciplined borrower scores better in credit rating that increases borrowing capability.
About the author–Ricky Harrington is a blogger who writes only on financial topics. How individuals can benefit from financial products like personal unsecured loan that is available in the market is the theme of the majority of his blogs. He is also very fond of travelling and takes special interest in exploring various cultures and meeting people.