Learn About Personal Loans – The Neat Borrowing Tool That’s Booming
We are all familiar with the idea of credit. That blessed source of finance that comes to the rescue when you’re all out of dough – the very same thing that later has the potential to bring so much woe when mismanaged! Well, credit is something that a lot of us rely upon, whether we like it or not.
Credit also comes in many different varieties – and today we’re looking at personal loans. Personal loans happen to be a very popular credit type and are easily available. Did you know that it is even digitally offered by banks on their apps? Since it is now easier to apply for approval, it is best that you know all there is to know about personal loans, right?
Is a Personal Loan the Right Choice For You?
First and foremost, you have to ask yourself whether a personal loan really is the correct option of all the credit options available, for you in particular. This is an important question to answer long before you sign that dotted line! You can’t decide whether it is right for you if you don’t know how it works, so we’ll get to that now, otherwise, you land up with a repayment problem!
How and When Personal Loans Came About
Once upon a time, not so long ago, there were very few borrowing tools to choose from. There was the bank loan, which was available only for those with the highest credit scores, and the credit card, which equated to loads of interest. When the recession took over in 2008, a lot changed, and one of the changes was that a crop of tech startups in the finance industry emerged offering a product we now know as personal loans. The market they created is now a booming one! In 2018, the credit scoring company called TransUnion revealed their statistics that unsecured personal loans were at a record $138 billion!
The Workings of a Personal Loan
So, these babies come either secured or unsecured. In the secured variety, you actually have to cough up some collateral in the form of assets to secure your loan repayment, just in case you don’t manage to pay the loaned funds back. In the event that you default on repayments, the lender is still alright since they have your asset to sell or do what they please with.
Auto loans and mortgages work on this principle since the title deed or the documents for the vehicle remain with the lender until everything you owe is paid up. Unsecured loans, then, are the opposite – this is where you borrow finds and offer no collateral, but it hurts your credit rating and it can be very difficult to shake off an ugly credit score.
How They Are Different
What makes personal loans an attractive borrowing tool is a fact that they feature flexible terms, which can be arranged for each borrower according to their financial situation. Also, the longer the period the loan is taken over, the lower the monthly repayments are. Of curse, this does mean there is a trade-off since you pay more interest since you’re paying over a longer time. Personal loans often also feature a fee for processing your application, sort of like an admin charge. However, there exist online lenders who do not charge this fee as well. These fees are actually termed ‘origination fees’ and they are actually fading away, so pretty soon you won’t have to factor those in when you’re choosing a loan!
Even with all this information, you still have to learn more about the other forms of credit so that you can compare personal loans against those before finally settling on the right solution for you. It goes without saying that ultimately if you can manage, the best way to go is without any credit at all! Realistically speaking, though, we know that life happens and we aren’t always as prepared as we thought we were!
Also, sometimes it really is better to consolidate your debt, which is something you can do using a personal loan instead of going under debt review (which can impact your credit score as well!). Bear in mind that to qualify for a personal loan you need to have a good credit score to begin with – which is basically a prerequisite for all types of credit!
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