What are Personal Loans?

Financial emergencies can crop up at any point of time.  While sometimes they come with warning signs, most of the times they come out of a blue. Now, if you are thrifty by nature and have been able to save up for rainy days like this, then you’ll do fine on your own. But what if you don’t have any savings of your own or your need exceeds your savings?

License: Creative Commons image source
License: Creative Commons image source

Well, in such a situation your best bet would be to apply for a personal loan at any reputable personal loans company. There is more than one such company available anywhere at any given time. You can either search online or ask your friends and families for references. But before you start looking up company names here’s a brief look at what personal loans are about.

What is it?

A personal loan is a source of crediting which allows you to borrow the money you need and within a short span of time. You can spend this money on any personal reason starting from renovating your home, meeting medical expenditures to financing your personal business. No matter what the reason is you can get access to ready cash via this plan.  It is offered both with and without collateral. But the terms vary thereon, depending on the type of plan you choose.

  • Secured – Under this type of financing you can apply for credit from a bank or a credit union, but to get the cash you need, you’ve to provide your lender with a security or collateral.  This means you’ve to sign over any physical property you own as an assurance to your lender. Thus reducing you lender’s risk in the transaction. As a result of this the lender will charge you a lower rate of interest on the principal. However the downside of this sort of transaction is that, in case you are unable to make the timely repayments, the property you’ve signed over as your collateral will be forfeited over to your lender to cover his losses. Thus, before you apply for such credit, make sure that you can afford the amount you’re borrowing and the interest on it. If you are unable to keep up your end of the bargain, not only will you be losing out on your property, you’ll also hurt your credit score and might ruin your chances of getting such financing in the future.
  • Unsecured- This type of plan allows you to obtain cash from lenders without providing any security or collateral. Thus, unlike the secured scheme here the risk is transferred to the lender. Since there is no absolute guarantee that the lender will not be left inconvenienced because of you, she/he will have to come up with a different way to cover her/his risk and losses if any. Therefore, under this type of scheme the borrower normally faces very high rate of interest on the principal borrowed. Thus, even though you don’t lose out on any property due to your inability to make the repayments, the monthly installments you have to make are substantial enough to ruin your savings for a long time to come. Also it is not very easy to get approval for this type of financing, you’ve to have very high credit score and also make sure that your past financial and loan records are unblemished. If you have a high debt to income ratio then it becomes all the more difficult to get this kind of financing. All these conditions are precautions taken by the lenders to weed out high risk and non-serious candidates. Thus, before you apply for such a plan, you need to make sure that you have calculated properly what exactly you require, and what you can actually afford.

After you have made your decision and chosen the kind of plan you want, you can start looking for reputable personal loans company, either online or offline.

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