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By Israel S — Published January 15, 2018
The Basics of Personal Loans
Personal loans have a fixed sum
Depending on the lender, these loans could be restricted based on your income and credit rating. The loan amount could range from $1,000 to $40,000. Your loan could be more if you have a better credit rating and bigger income.
Unlike credit cards, these loans are one-time so you cannot borrow again and again. The balance decreases as repayments toward the loan begin, which allows no available credit for you to borrow yet again. Once the loan is repaid the account is closed and you will need to re-apply for a new loan.
Personal Loans are unsafe
These loans are difficult to obtain since one does not need a security to receive this loan. If you falter on the personal loan, the lender cannot confiscate your property or asset as a repayment option. Though the lender cannot impound your assets, they could still resort to other actions. This could include hiring a collection agency, filing a lawsuit, and reporting late payments to credit bureaus.
Fixed Interest Rates
Just like the loan amount, even the interest rate is fixed. Similar to the loan, the interest rate applicable is related to your credit rating. Therefore, better the credit rating, better the loan but also fetches you a lower interest rate. This in turn helps you since you repay a marginal cost compared to when the interest rates are high.
There is an option of variable interest rate which allows periodic changes which has a downside since the repayment amount fluctuates depending on the interest rate. This could make it cumbersome for you to budget your loan repayments.
Fixed Repayment Period
The period decided for you to repay your loan is stated in months and could be anywhere like 6, 12, 24, 36, 48. You may have a lower interest rate if the repayment period is shorter. Longer the period to repay would lower the monthly payment, but would accrue higher interest rate. Longer the repayment period, longer the time needed to payback the loan.
Having pending loans could hinder your credit card approval and other bank loans. Some lenders could charge a penalty for repaying the loan earlier than decided.
Loans affect credit rating
Most lenders being legal would report your loan details to credit bureaus. This means that your loan application, monthly paybacks and any defaults could affect your credit score, and also a new inquiry on your credit report. The best option would be to make your paybacks on time.
Scram from Scams
Be cautious of lenders who can approve your personal loan even with a bad credit history. Beware of lenders who request money by credit card or wire transfer to get the loan.