Personal loans are used for personal purposes. A personal loan does not require collateral and is only secured by the borrower’s promise to pay accordingly. It is riskier for the lender than other loans for they could only depend on the borrower’s willingness to pay back the money they borrowed. Here are some of the important things one should know about personal loans.
- Usually have fixed interest rate – The credit rating is the basis for the interest rate in a personal loan. Lower interest rate is given to those with better credit score.
- Properties are secured – As loans do not need collateral, one could be in relief that the lender cannot took over your properties if you failed to pay them but it is ethical to pay what you borrowed so that in times of emergencies, they could still lend you money again.
- Pay for medical expenses – Medical expenses cost a lot. It ruins family’s budget but one cannot compromise one’s health. If one has a medical insurance, then he/she can save more money but since not all expenses are covered in a typical health insurance like dental expenses, one cannot avoid getting personal loans.
- Vacation and travel – Families like to spend some quality time with each other. They often go travelling and vacation. Vacation is also a nice gift for yourself after going through so much work and stress but sometimes, your income is just not enough. Personal loans can help us go to the places we have always dreamed of.
- Pay for credit card bills – To avoid disconnection, one should always be able to pay their credit card bill but because of several other expenses, we are left with no money for our credit card bills. In this situation, one can turn to personal loan.
- Purchase things – People have some things that they want to have. Some wanted to purchase gadgets, laptops and even home appliances. Sales and discounts can be quite luring. Since they would only be there for a limited time, people take personal loans in order to buy the product for a much lower price.
- Fixed amount – Having a good credit score helps in borrowing more money from the lender. The personal loan usually has a fixed amount but the better your credit score is, the more money you can borrow.
- Might lead to lawsuit – Even though the lender will not have an authority against your assets, they could still find legal ways as a penalty for your failure to pay. The lender can always file a lawsuit against you.
- High interest rate – As it is riskier than the other loans for the lender, they charge high interest rates in return to make up for the risk.
- Good credit score is necessary – As it is risky, lenders approve personal loans to those who have a good credit score. Your personal loan application has a tendency to be rejected if ever you have a bad credit rating.
It is better to know the pros and cons of personal loans for better decision making. Different loans have different benefits and risks what is important is that you know what you are getting into and prepared to face whatever result there is.