Personal loans are a better way of borrowing money considering their lower interest rates as compared to credit card rates. The most common uses for personal loans include; credit card payoff, consolidation of debts, education, car financing, training, business needs, vacation expenses, major purchases, wedding expenses, home improvement, moving costs, and medical expenses.
There are two types of personal loans namely; secured and unsecured. Secured loans offer lower interest rates, but you must put up something as collateral. If you do not pay, the lender can claim the property to repay their investment.
This guarantee gives the loan lenders a great deal of security and allows them to charge low-interest rates. Unsecured loans, on the other hand, are given out with just a signature they require no collateral. They have higher interest rate charges compared to the secured loans.
Like in any other type of loan interest rate is key. The interest rate is the lender’s payout for the use of their money. In personal loans this rate is determined by your credit score, the better the score, and the lower the interest rate.
These rates, however, differ from the different lenders; therefore you should do your research well before deciding on a specific lender. Before settling on the given interest rate consider the type you want is it fixed or variable.
Fixed rates are unchanging while variable rates change overtime and are based on a market rate.
Before signing up for a loan you should look at the term, this is the maximum time you have to repay the loan. Most personal loans have short terms of up to five years this, therefore, reduces the amounts of interest you pay. Remember loans can be paid off before the term is up.
How to qualify for a personal loan
A personal loan is an easy way of borrowing money. When compared to a business loan and other types of loans, it is simpler to obtain. This is because it requires little to no security depending on the type of loan used. As stated earlier, the two different types of personal loans are; secured and unsecured loan. Each of these loans has different qualifications as follows:
Unsecured loans
This form of loan is also known as a signature loan. This is because it can be easily traded for your signature. However, the downside of this loan is that it comes with a higher interest rate, meaning that you will pay it back with a very large interest. The only good side is that they have minimal requirements as compared to secured loans since they do not require any leverage.
Secured loans
This loan, on the other hand, requires some leverage before you are issued. Such leverage can include your house, car, and personal savings among other equity that amounts to the loan’s worth.
The upside of this type of loans is that they come with very low-interest rates. On the contrary, they come with a higher risk of losing your property. This is because in the case that you fail to pay back the loan, your piece of property which you had given up as security will be confiscated.
Therefore, before you decide on the type of loan to take, it is advisable that you first weigh out all your options and choose the one that is worth all the trouble.
When thinking of taking a personal loan, it is important to do wide consultations so you can establish what your credit history qualifies you for. This way, you will be able to know if taking the loan is worth it or not.
