Personal loans being unsecured can be one of the more difficult types of loan to apply for. But as long as you are a familiar client of a bank or any other financial institution and have a good credit history and background, chances are your loan will have a good chance of being approved. Personal loans are usually a general purpose loan that can be borrowed from a bank or any other financial institution for that matter. The term personal loan was coined because the amount can be used solely on the discretion of the borrower. Personal loan are normally used to cover unexpected expenses such as medical procedures, house repair and educational expense.
Personal Loans are Unsecured Loans
Unsecured means that the borrower is not obliged to cover the loan with collateral in order for him to receive the loan. This is the main reason why it’s difficult get approved for this type of loan. Without a security for the loan, the money lender would have a hard time recovering the amount in the event the borrower defaults on the loan. Most personal loan lenders would give priority to known clients of the financial institution.
Loan Amount and Interest Rates are Fixed
Personal loans have fixed amount and are usually based on the borrowers capacity to pay, income, credit history and ratings. Their interest rates are also fixed and will not change for the duration of the loan. The interest rate for this type of loan varies and will depend largely on the credit rating of the borrower. In short, the better the credit rating, the lower the interest rate will be.
Fixed Repayment Period
Personal repayment terms are always fixed and they range from six month to a year for small amount while larger amount can go as long as ten years. Personal loan therefore can either be a short or long term loan. It is true however that a borrower will have less amortization to pay if the loan is long term. However, the borrower should realize that interest rates are usually compounded and since this is the case long term loan will incur bigger interest as compared to the short term long.