The primary feature of a personal bank loan is that it’s not guaranteed by collateral. The term collateral suggests something valuable, such as a house, motorboat or automobile that the loan provider could claim should you not pay back the loan as agreed upon.
A personal bank loan holds solely on a borrower’s promise to make repayments and therefore these type of loan is also referred to as signature loan or unsecured loan. In most cases, this loan follows a fixed interest rate with a repayment period of 1 to 5 years.
How to Qualify for a Personal Loan
Since the loan provider has to depend solely on the borrower’s motivation to settle the financial loan as arranged, credit rating is very crucial. Banks and other private lenders rely on your credit history to foretell the way you will manage your finances in the future.
The lending company will take your loan application and then look into your debt to income ratio. Income and debt are two factors that impacts the loan amount that the lending company can extend to you. Lenders also look into these factors to determine the period that you are going to pay. The lending company likewise takes a look at your credit report in order to determine a credit grade.
Your credit grade, the loan amount, and the length of the loan will determine your loan rate and terms. This varies considerably so it is always nice to compare quotes from at least 2 or 3 competing loan companies to find the best loan rates, terms, and features.
Where Can We Use Personal Bank Loans ?
Personal bank loans could be used for varied purposes as follows, debt consolidation, tuition fee, other school expenses, trips, wedding, and even pay off credit cards. While personal loans can be used for practically any financial needs, several loan specialists suggests not to use long term personal loans for short term financial needs.
Unsecured personal loans have different repayment fees and cost compared to secured loans. It does have a similar repayment term of 5 years but the cost of loan is usually around 50%-60% of the total repayment amount (principal + Interest rates). Extra repayments are allows but some banks and lenders require an early repayment fee if you intend to pay for the loan earlier than the initial loan term agreed.
Advantages of Personal Bank Loans
- No collateral claim. Personal bank loans are unprotected, which implies the lending company could not claim your property in the event you default on the loan.
- Faster processing time compared to secured loans. There is absolutely no collateral to evaluate, so obtaining a decision and acquiring your funds can occur quickly.
- Interest rates for personal loans generally has fixed interest rates and follow a definite repayment schedule.
- A tool to improve credit rating. Credit scoring favors installment debts over revolving debt such as credit cards.
- Lower interest rates compared to credit card interest rates
If you are considering to submit an application for personal bank loans, contact a trusted loan broker to match you with the best personal loan for your needs.