Financial obligations can sometimes be difficult to meet even with a regular monthly income which is why many people opt to apply for a personal loan. This is basically money that you borrow from a lending institution for your own personal use. It may be for paying off bills, for a vacation, medical expenses, home renovation, motor vehicle repairs or study expenses. There are different creditors that offer loans for personal use including banks, micro-finance institutions, online brokers and individual money lenders. The term of the loan will depend on factors such as the amount borrowed, the scale of your salary as well as the policies of the lending institution. You will pay back the borrowed money plus interest through monthly installments.
Generally, personal loans are either security based or unsecured. To qualify for security based or secured loans, you need some collateral, in which case would be a valuable asset that serves as security for the money borrowed. The lending institution can claim this asset in an attempt to recover their money when you default in making payments. On the other hand, unsecured loans do not require any collateral. However, an unsecured personal loan attracts higher interest rates since the creditor faces a greater financial risk should you fail to pay off the loan.
What are the qualifications of a personal loan?
Personal loans are a great way to access money that you do not have but desperately need. Application procedures are often straightforward and all you need is to verify proof employment, contact details and residence. Credit ratings also determine whether or not a personal loan will be approved.
Lenders use this to assess your ability to pay back the loan. Although you can still qualify for a loan even if you don’t have a spotless credit history, interest rates for such loans are often high and require security. Additionally, if you had recently gone bankrupt, this might make you ineligible for any kind of loan.
Different institutions place varying limits to the maximum borrowing amount and lending periods. Normally, the lending duration can be as long as five years, but this largely depends on the rules of the lender and the amount intended for borrowing. Long repayment periods might seem attractive since monthly payments are low, but you end up paying more in terms of interest.
Consideration for Debt Consolidation
Debt consolidation is one of the main reasons why you might be in need of a personal loan. When borrowed funds meant to consolidate debts are managed incorrectly, you can find yourself in a perpetual cycle of debt accumulation. Therefore, consider the interest rate, your monthly wage and the lending duration before borrowing money to offset debts. In addition, make sure that the monthly payment is within your means when making amortization calculations. It is prudent to borrow the need amount and pay it back as soon as possible. If you find yourself continuously accumulating debts, taking up a debt management course might be helpful.
