There comes a time in one’s life when one wants to buy things that one can’t afford to pay, especially when one doesn’t have significant savings. It’s the time when one decides to take out a Secured Personal Loan to acquire something that requires a considerable payout.
There are many kinds of personal loans. There are debt consolidation loans, travel loans, veterinary loans, funeral loans, student loans, Jet Ski loans, bike loans, boat loans, motorcycle loans, car loans, hair transplant loans, breast augmentation loans, etc.
People take out a personal loan because of an expense that is often too hefty to charge with a credit card. Another reason is unexpected expenses, like emergency eye surgery or emergency dental surgery.
In the course of a person’s life, significant events like weddings or funerals happen, and these expenses can be huge. If one doesn’t have savings, they turn to personal loans to pay off these events.
If you decide to go to college, and your parents won’t cover your expenses, you might take out a student loan.
In this article, you will find the 5 fundamental things you need to know before taking out a personal loan.
1. How Personal Loans Work
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A personal loan is an installment loan—you borrow a certain amount of money, and then you pay it with interest every month in the agreed duration of your loan. The span of a personal loan payment is somewhere between one year to seven years.
2. The Two Types of Personal Loans
There are two basic types of personal loans: secured and unsecured. An unsecured loan doesn’t require collateral. Your lender will be the one to decide whether you qualify for the loan based on your credit score and financial history.
The absence of collateral makes an unsecured loan more difficult to avail. But, there are many other things lenders can do to retaliate if somehow you wind up not being able to pay for your monthly dues. They can report your late payments to credit bureaus, hire collection agencies to bill you, and even go so far as to sue you.
If you are not qualified for an unsecured loan, you can then move on to a secured loan that is backed by collateral like a savings account. If you can’t make the payments to your loan, your lender will claim your asset in order to pay for your loan.
3. Places You Can Get a Personal Loan
The most popular place to get a Secured Personal Loan is the bank. But they’re not exactly the only place. You can take out a loan in credit unions, finance companies, peer-to-peer lenders, and online lenders.
4. The Interest Rate
Your interest rate is a massive factor in your personal happiness about your payment terms and ability to pay for your loan. The interest rate affects how long your loan will be. They typically range from 5% and can even go as high as 35%. If you have a good credit score, the better your interest rate is.
5. The Origination Fee
There are lenders who charge for covering the cost of working on your loan. These usually are from 1% to 6% of your total loan amount.
The potential financial burden is thus reduced, and such a facility generally works for the borrower’s benefit.
