A personal loan is a short-term loan to assist you with your finances. This payday loan is secured against a future paycheck. These loans have become quite popular today, and now this is the main way to get financial assistance in the form of a cash advance.
A personal loan is a type of debt which is made for personal, family, or household use, and which is neither a business loan nor a long-term mortgage loan. The lender loans money to the borrowers. The borrowers pay back this amount, usually but not always in regular installments. This service is generally provided at a cost, which is referred to as interest on the debt.
With a personal loan one can meet his financial requirements. Be it any ceremony in the family, a surprise gift or a grand vacation, personal loans provide a helping hand. The personal loan helps to take care of all kinds of expenses in a short time period. This type of loan usually covers travel expenses, holiday expenses, medical expenses, marriage expenses, honeymoon expenses or any other personal type expenses.
What are the types of personal loans?
There are basically Two Types of Personal Loans. They are:
1. Secured Loan
2. Unsecured Loan
Secured Loan: – Wherein the loan involves the attachment of collateral – say, your property or any fixed/movable asset- against the sum of money borrowed. You risk losing your home should you default on repayments.
Unsecured Loan: – Here the loan is not secured against the loan amount borrowed. But consequently the lender would be charging a higher rate of interest, taking into account the high risk involved in lending the sum. Here, failure to make regular payments would see the lender fall back on the credit agreement, and resort to legal claims to make good the loss incurred.
Short Term Personal Loans
Short Term Personal Loans can be got through banks and online financial companies, and a wide variety of other sources. With such a Short Term Personal Loan:
- The rate of interest involved is usually high. This is because the period of repayment is usually for a short time.
- This type of short term funding is often utilized to help individuals who are in need of varying sums of money for a short period.
- Banks, while giving this type of short term personal loan, usually require collateral, before disbursing the same.
- Because of the negative and positive aspects of short term personal loans, it is recommended that the individual does his research thoroughly, before he applies for funding.
A personal loan can be further classified into a secured and an unsecured loan. The main difference between the two is that one is obtained with a collateral and the other without the collateral. But the purpose of the loan remains the same, that is to realise personal needs. As secured loan is obtained by pledging collateral such as a house, a car, property or anything of value, on failure of repayment of loan amount the borrower runs the risk of confiscation of the collateral. But at the same time a secured personal loan will come to a borrower at a low APR(Annual Percentage Rate) and a larger amount of loan will be sanctioned due to the collateral laid out to the lender in the form of security. Since the lender has some amount of security to claim back his loan amount he easily offers loan to the borrower. The better the value of collateral that is the equity the better the loan terms gets.