Personal Loans

A personal loan, as the name suggests, can be for any personal reason. Examples could be a son or daughter going to college, a new car, or any other sizeable purchase you may need to make. Personal loans can, instantly, provide you with the required means, without anyone’s help.

Once you decide that you want to take out a personal loan, you need to look into which bank or company to go to. Government, private banks and loan companies can all be a resource to you. First step is to find out where the interest rate is most favorable, although this is not the only parameter that is of importance. Amount of paper work involved and service provided, may play a role in your decision also.

Generally speaking, there are three types of personal loans:

1. Secured personal loans. For this type of personal loan, banks will keep some kind of security, like your house or your car, depending of the amount of the loan. This kind of security is called collateral. If you are unable to repay your loan, the collateral can be confiscated by the bank giving the loan. So, if you are not absolutely sure you can repay the loan in the appropriate timeframe, realize that you are putting your house or car on the line, But having collateral has it good sides also. Interest rates are usually lower, since the loan in secure.
2. Unsecured personal loans. As the name suggests, no collateral is required for this type of loan. They can be obtained quickly, but because of the risk the lender is taking, the interest rates are normally higher, and the amount of money you can loan is generally lower.
3. Line of credit refers to setting up a limit to the amount that will be available to you, without paying out the full amount at the time of close. You have the flexibility to take out as much as you need, obviously with a limit. Credit cards, in essence, are an example of a line of credit. Interest rates will only apply to the amount you withdraw from the credit limit.

As the above indicates, interest rates vary with the type of personal loan chosen. If time is of the essence and interest rates are not your main concern unsecured personal loans seem to be your best bet. Lines of credit can be useful, e.g. when you are doing a construction project and you do not yet know the exact costs involved.

Regardless of the loan you choose, make sure you know the interest rate and the length of the loan. Calculate the monthly installments, and assess whether this is realistic for your situation. The lender should give you upfront the number of skipped monthly payments and/or bounced checks they can accept. Make sure that you do not exceed this number for there can be very serious legal repercussions. If you can adhere to the agreed payment schedule, a personal loan can be a blessing in a time of need.



Karin Boode is the founder of the Loan Info Center, and the author of many loan related articles. The Loan Info Center strives to provide valuable information regarding any type of loan. She has a blog specifically for personal loan related questions and one that focusses on secured loans.