A personal loan can be compared to a credit card issued by a bank, because there is nothing to back it up in both cases. The bank or the financial institution trust that you, as a borrower, will repay the loan, and they do not ask you to provide any assets like a car or home. The only difference between a credit card and a personal loan is that the bank will offer you the entire amount right away. If you are approved for a loan amount of $5,000, then they will offer you the check for the amount in just a couple of days.
Things to keep in mind
One should be very careful of the personal loan interest rates that they choose. They are usually high just like the interest rates of credit cards, because there is nothing tangible to back up the loan amount. Personal loans should be considered for short period of time so that the interest rate will not affect you as much. In case, if you are thinking to borrow it for over 5 years or so, make sure that you are aware of the payments that you are going to make only in the interest. Currently, personal loan rates offered by most of the lenders are around 13-14%.
Some benefits for getting a personal loan
- A personal loan term can assist you in improving your credit score. Getting a loan term and repaying it on time improves credit history no matter what the amount of the loan is.
- The bank does not require you to tell what you are going to use the loan amount for. You can use it for a number of purpose, including making home mortgage, paying utility bills, planning a holiday, paying child’s education, and many more.
- Affordable rate loan term even for borrowers who have less than good credit rating. If you have a secure job and the repaying ability, you can still qualify for an affordable rate loan term.
All that you have to know is that the loan amount, repayment term, and the interest rate are largely determined by your credit history. Some borrowers find it hard to get approved for a loan term because of their low credit ratings. Understand that if your debt to income ratio is too high then lenders are not very keen in offering any kind of loan option.