Personal loans are of great use to people who need fast cash to meet their financial difficulties. Personal loans come with either fixed interest rate or variable interest rate. And the two basic types of personal loans are secured and unsecured. Considering the amount required and sources of income the interest rate and the lender must be chosen.
For many of us, personal loans are synonymous to saviors. At times of difficulty we seek the help of God to solve our problems, just like that at tough financial situations we look for loans to tackle all our emergencies. A personal loan is borrowing a sum of money form financial institutions, credit unions and banks for personal use. As the name suggests the borrowed money can be used for all personal expenses like vacation, holiday trip, and pay bills and to car maintenance. The borrower will pay the interest to the money borrowed in monthly installments along with the principal amount within the fixed period. Personal loans are available for different amounts and for different time period. Depending upon the amount needed and purpose of the loan the repayment tenure has to be chosen.
The amount that can be borrowed through a personal loan depends upon the lender and the borrower. In general the largest sum of money that can be borrowed is £10,000, some lenders also grant a loan of £25,000. The repayment tenure varies from 6 months to 10 years. Minimum amount of money that can be borrowed is £1,000. Personal loans come with a fixed interest rate or variable interest rate. In fixed interest loans the monthly repayment amount is same through the loan term, whereas in variable interest loans the interest rate and the monthly installment amount changes, usually the interest rate is less at beginning and increases in later period.
The advantages of fixed interest loan are, as the loan rates remain steady the borrowers can plan their budget, the cost of the loan is set at the beginning. The disadvantages are the interest rate is usually high than in variable interest loans, even when government reduces the interest rate the bank will not reduce the interest rate. The disadvantage of variable interest loans is that repayment amount increases and as the rates fluctuate there are chances of increased stress. The best option is to fix the repayment tenure of the loan in 5 years so that irrespective of the interest rate the financial burden is reduced.
Two Types of Personal Loans
The basic two types of personal loans are secured loans and unsecured loans. Secured loans are where the borrower provides the lender something he owns as a security. This sort of pledging the collateral allows borrower to raise large sum of money within a short time. The amount that can be borrowed is high and the interest rates are usually less. Some lenders do give loans against the already mortgaged property which is known as second charges. Loans given against the fresh property is known as first charges. If the borrower does not repay the loan amount on time the lenders may repossess the property pledged. A home, vehicle or a piece of land can be pledged as collateral.
Unsecured loans grants cash to people even if they do not have property or do not wish to pledge their property. These loans are usually a short term loan and the loan amount depends upon the borrower’s ability to repay and his bonding with the lender. These loans are called as unsecured as there is no security for the bank about repayment, hence the interest rates are also high in these loans. The main advantage of these loans is that the lender cannot seize the property even if repayment is not done at time.