Interested in a personal loan, but unsure what it is and how it works? You are not alone. If you are starting out on your own and need some finance, the many types of loans can be daunting, but here is some basic information that will help.
What is a personal loan?
Amongst the types of loans that a bank can offer, a personal loan is one of the more difficult to get. A personal loan is commonly used to finance individual needs. A situation where one might need to acquire a personal loan would be to finance a car or redecorate a house. They can be a quick method to receive money. They are generally a smaller loan and differ greatly from a mortgage or a bridging loan which come with high interest rate and are generally for longer term lending.
What do I need to know?
Unlike a mortgage, where the property becomes collateral, personal loans are unsecured. This means that the lender cannot take a piece of your property should there be a default. However, they can notify a credit bureau and hire a collection agency to take personal property, equal to the debt owed. This is one of the reasons why a personal loan is more difficult to acquire. Banks will also ask you what the personal loan is for. This will affect the decision to give you loan, as well as your credit score.
While this may be a daunting prospect, the bank will only take action if the borrower defaults on a payment.
Another aspect of the person loan is that it comes with a fixed amount, agreed upon between the borrower and the lender. This is beneficial as it prevents you from going over your limit. The interest also depends on your credit rating; having a good rating will mean you will pay less on the interest.
Fixed Repayment Period
Like the fixed amount, you can decide on a fixed repayment period with your bank. They can be paid back over a longer period, while this lowers the monthly repayment amount, it does however increase the interest. The payment periods work in months and can last from 12 to 60.
Like with the variety of deals and offers, it is always best to shop around and find the best deal. Banks will also decide on giving you a loan based on your credit history, so ensure that you can maintain payments and any past debts have been cleared. If the bank can see that you have defaulted on payments in the past or have any outstanding, they may be hesitant to give you a loan.
Read the Small Print Before Signing
Once you’ve decided where to get a personal loan, it is highly advised to read the small print. As personal loans tend to be unsecured, ensure that you’ve read the terms and conditions and know exactly what the penalties are.
Finally, personal loans can come with PPI. You can decide whether to opt for this, but it does cover you in the event of sickness and unemployment which can have an effect on repayment. Click here for more information,
By Harry Price
Harry Price is enjoys spending quality-time with his 3 dogs, training for the most extreme marathons and volunteering at his local charities on his time off. He is a technology lover and unashamed texting addict