If you have started looking at personal loans, you may be wondering what sort of circumstance you can make use of it and what should you do to get the right type of loan.
The main objective of using a loan is to help save money, pay off debt, cover financial emergency, and help build a better financial future for yourself.
What Is A Personal Loan? A Complete Guide
In recent years, an increasing number of consumers have started taking personal loans to meet financial needs especially the business owners and entrepreneurs. Personal loans are general purpose loans which can be used at your discretion.
To get yourself eligible for personal loans is not an easy process rather it requires strict qualification criteria and the services who renders these loans follows a unique set of rules.
Credit cards are easier to get, and people take loans using their line of credits. However, the interest is seemingly higher with credit cards. Moreover, when you miss a payment, your interest rate goes up further high and turns into a real nightmare.
Therefore, in order to get rid of these debts, people generally opt for personal loans which are generally offered at lower interest rates. Perhaps paying off high-interest loans like a line of credit, student loans, could save you a lot of money.
In addition, you don’t require to place an asset as collateral unlike other loans like a home loan or car loans. So, when you fail to repay the loan, the lender cannot seize your property.
However, when you are at default or failure to make regular payments, the lender can flag this issue to the credit bureau, hiring a collection agency or file a lawsuit against you.
Apparently, this negative markings on your credit will certainly impact your creditworthiness and next time, and you will not be eligible for a loan. But what are the basic eligibilities for your personal loan?
Eligibility Criteria For Personal Loan
Personal loans requirement is not standard however the basic eligibility requirements are age, occupation, income, ability to repay your loan and the location you reside.
In order to get qualified for the loan, one of the main criteria is you should have regular income source irrespective whether you are a salaried individual, a business owner, self-employed or an entrepreneur.
The other important aspect that significantly impacts the loan eligibility criteria is your credit scores. The higher the credit scores, greater the chances of getting qualified for the loan.
Let us look at the different types of personal loans. Knowing the types, you will have a better perception of choosing which loan could be more beneficial for you.
Unsecured loans- These are loans that are issued and supported only by the borrower’s creditworthiness rather backed by any type of collateral, such as online payday loans. They are usually approved by lenders very fast, sometimes on the same day of the application. For home renovation projects, unsecured personal loans are ideal options. They generally don’t require any property of collateral to guarantee your loan.
Secured loans- Secured loans can be borrowed for a higher loan amount with lower interest however you need security like an asset such as home to secure or guarantee your loan. Technically the asset becomes part of the debt you owe when you pay the loan back, your ownership of the asset increases.
Fixed rate term loans– These are term loans from a bank for a specific amount, and the interest rate remains the same for the entire loan term. Term loans are blended which is a combination of principal and interest for every monthly amount, and it doesn’t change over the term of the loan which means, the payments are done on a fixed rate.
Variable rate term loans– They are quite the opposite to fixed-rate loans, where the interest rates are charged on the outstanding balance. This invariably depends on the market interest rates changes. In a nutshell, the interest rates fluctuate over time in line with prevailing interest rates.
Line of credit– This type of loans allows the consumer to borrow only the amount you need and offers a variable interest rate depending on the amount you borrowed. One of the advantages of this type of loan is, it is pretty lower than the fixed rate loans.
Car loans– it is a sum of money the consumer borrows in order to purchase an automobile. When you get the auto loan for the right vehicle and at the right time, it can save you thousands of dollars
Student loans– This type of loan is designed to help the students pay for their post-secondary education and is repaid over time. Whether you are a part-time or full-time student, you can apply for a loan through this program.
When you are looking for your business expansion, a business loan apparently will help to brighten the future of your business.
If you don’t qualify for a business loan, a personal loan would be an ideal solution.
However, while choosing the loan, go for the lender who offers great loans products with lower interest rates. This would certainly save you hundreds of dollars.