Ara Betty is a freelance financial writer and speaker about personal financing. She helps people realize their goals on becoming debt free with the use of debt consolidation. She hopes to expand her knowledge more about loans and debt to be able to write a book.
It is normal that at some point in life you need a little financial assistance. A loan is a certain amount of money that is extended by an individual or an entity to another individual or entity at an agreed interest rate and repayment period. Whichever type of personal loans you are going to get, it is of utmost importance to consider interest rates, fees and charges. Choose a loan that suits your financial situation and meets your needs.
A personal loan will surely tide over most individuals in financial difficulties. Personal loans are generally for individuals and they include mortgages, equity lines of credit, installment loans and payday loans. Personal loans are taken out to meet unplanned expenses which could range from car repairs, medical bills, debt consolidation and other personal needs.
People struggling in a financial crisis opt for personal loans due to their various benefits for borrowers. Personal loans are personal gives the borrower the liberty of using these loans to finance several of their needs. Personal loans are easy to secure as their requirements are easy to meet. With personal loans, you do not wake up to hiked interest rates every dawn since personal loan rates are fixed from the moment of borrowing to the time of making your repayments. The interest rates of personal loans are comparatively lower compared to those of other forms of borrowing such as credit cards.
For individuals who have a dark past in borrowing such that their credit score is low can still qualify for personal loan for bad credit. This type of personal loan is independent of the borrower’s credit score.
When applying for a personal loan, you need to be on the lookout for scam lenders who are out to take advantage of vulnerable, unsuspecting individuals who are desperately in need of cash. It is imperative to be cautious and thorough when reviewing lenders and their loan terms. You should be dealing with a legitimate lender. Common scams in personal loans take the form of the following:
- Advance payment fees: the lender asks for a document fee, application fee or an insurance fee to process your loan. Legitimate lenders do not ask for money before giving you a loan. Usually, the fees are incorporated in the total cost of the loan.
- Hiked up interest rates: Rogue lenders are known to inflate their interest rates or stretching the repayment schedule so that it extends for a few years. These two aspects result in an increase in the total cost of money of borrowing. It is, therefore, advisable that those taking out a personal loan to seek the help of a personal loan calculator. It uses the amount of money borrowed together with your credit score and repayment period to determine the interest rate to be charged on the loan. Avoid a lender that quotes a rate higher than what you are supposed to be paying.
- Copycat companies: Most fraud cases happen online. It is therefore of utmost importance that you do your homework thoroughly by verifying the business name and address before signing on with the company. Reading the company’s loan terms and conditions to ensure they suit your needs is also imperative.
Personal loans are either of a secured or unsecured nature. It is important to note the clear cut differences between these two types as it may influence your decision on which type of loan to take on
Secured loans are loans that require you to put up property as collateral for the loan, such that in the event that you default payment, the lender keeps the property. You will need to pledge some of your property such as your house or vehicle to back the personal loan. With a secured personal loan, the interest rate charged on the borrower is comparatively lower than that of a borrower taking out an unsecured loan. This is because, in secured personal loans, the lender’s risk of the borrower defaulting in payment is reduced. Most lenders of secured personal loans do not perform credit checks as they come with collateral. The main disadvantage of secured personal loans is that the borrower is at risk of losing property in case he is unable to make payments.
Unsecured personal loans do not require you to put up property as collateral, this type of personal loan is a great relief to borrowers who do not have property to pledge as collateral. With an unsecured loan, however, the borrower incurs high- interest rates. This is linked to the risk that the lender faces in the event that the borrower defaults in making payments. The fees charged are also comparatively higher than those in a secured loan. The loan limits an unsecured loan are low as the lender fears to extend large amounts of the loan to borrowers.
Eligibility for personal loans
Qualifying for a secured personal loan is quite easy. The major prerequisite for this type of loan is collateral, other factors such as minimum age of 18 of years and having an active account are also important.
In an unsecured personal loan, you have to convince the lender that you are in a position to make payments. That’s why you are required to provide proof of income by presenting pay slips, proof of identity by presenting a passport and government Id. You should also have active savings and checking account. Minimum age of 18 years or older is also crucial.