Loans are generally self-explanatory. Often, what they help you with is seen in the name: But what about those loan types that aren’t that obvious? What exactly is a personal loan, for example, who can get it and for what exact reasons?
A personal loan is fundamentally an unsecured loan, or simply a loan that you need not put up collateral or a down payment for as a requirement for receiving funds. You can for a personal loan at several financial institutions – for instance, banks, lending companies, credit unions, and the like. In any case, do shop around before applying for this type of loan as interest rates, terms and other details can vary significantly from among providers.
So how will a personal loan work?
The answer is, they’re pretty simple. When you apply and get approved for the loan, you will get the amount of funds you asked to borrow in a lump sum. Then you return that cash in installments. How long you have to complete those payments will depend on the terms that come with your loan.
On the other hand, how much interest you pay will usually depend on your credit score. The better your score, the lower the interest you pay. A good rate will mean savings as you repay the loan because you’ll be expected to pay a lower interest rate.
Be sure to go for fixed-rate loans so that you pay the same interest rate all throughout the term of your loan. All such details must be explicitly stated in your loan contract. Even more crucial is that you read the whole document very, very carefully, especially the smallest detaild before you actually sign any paperwork.
If there are questions in your mind, don’t hesitate to ask the loan officer so you know exactly what you’re getting into.
Below are items you have to be absolutely sure of before getting a personal loan:
> Interest rate > APR
> Origination fee
> Loan terms
> Whether interest is fixed or variable
> Any other inclusions
> Prepayment fees, if any
> Late payment fees
Most definitely, it is important to know as much as you can about personal loans before applying for one. More information means you can decide more wisely as to which type of loan and which loan provider is the best for you. Remember, there will be many out there, but they are hardly all created equal. As always, never skip your homework.