With many businesses forced to shut down during this pandemic and financial crisis, it is heartwarming to learn that one can get financial help by borrowing money. When it comes to acquiring loans, personal loans are generally more affordable than other types of loans.
If you plan to start a business or need a little cash for everyday expenses, here are some things you need to know about a personal loan.
What is a personal loan?
A personal loan is simply a loan taken out for personal expenses. The loan does not need to be tied to any assets or property, unlike mortgages, student loans, and auto loans.
Personal loans are primarily used to cover home renovations, pay off other debts, plan vacations, and manage medical bills. It can also be used for unforeseen expenses when an emergency fund is needed.
Secured and unsecured personal loans
There are two types of personal loans: secured and unsecured. Secured personal loans require that you provide collateral for your loan.
Collateral is any physical good or bank asset, which guarantees that the debt will be repaid. If you don’t repay, the lender will repossess the collateral to repay the loan.
Banks typically require physical assets like houses, cars, or even boats as collateral. It can also be cash holdings in a savings account or certificate of deposit. The advantage of a secured personal loan is a lower interest rate since it is backed by collateral.
On the other hand, unsecured personal loans do not require collateral. Lenders like Creditninja.com will examine your banking history or other financial information to determine if you qualify for this loan. Unsecured loans are usually taken out for personal loans because they are not tied to anything. But note that this type of loan has higher interest rates due to the risk it portends for lenders.
Personal loan fees
When obtaining a loan, it is important to remember that you may be required to pay certain fees, including:
Administration fees. A setup fee is deducted from your account after the loan money is transferred. These fees cover the costs of setting up your account, such as expenses for documents, files and other necessary documents.
Service charge. These fees compensate the lender for recording loan transactions.
Withdrawal fee. This is the amount that banks charge customers when a loan is terminated or paid off before the due date. It compensates the bank for interest that it will not receive due to the early closing of the loan.
Take the time to think carefully about the terms of your loan to avoid any additional expense.
When should you apply?
There is no right or wrong time to apply for a personal loan. However, personal loans are suitable for some special financial situations because of their easy access. You may have other reasons to apply, but here’s how you can use your personal loans:
Save yourself on high interest loans and interest on past loans.
Personal loans are not the most expensive loans. You can use personal loans to pay off a small amount on an outstanding loan. This will reduce interest and also give you more time to pay off a problematic loan.
Also, if you have a previous personal loan with a higher interest rate, getting a new personal loan with a lower rate could help you pay off the previous loan and save you money.
Build a dream house or a project
Financing a big project or a new house could be tedious, especially in this pandemic. However, personal loans allow you to carry out such projects because of their low interest rates and convenient repayment schemes.
Celebrate a milestone
Just like building the house of your dreams, a life event can also prove to be costly on your finances. For example, weddings, birthdays, or even a simple bat mitzvah could cut your budget due to the expensive nature of these projects.
However, getting a personal loan for these events can help you celebrate a once-in-a-lifetime event or milestone without having to worry about your finances.
In conclusion
Whenever you choose to take out a loan, whether it’s to pay bills or fulfill your lifelong dream, make sure you understand the terms of the loan to avoid financial problems. If anything is unclear or unfair, feel free to clarify and make some adjustments. Remember, loans are there to help you overcome financial difficulties, not to expose you to other financial problems.
