It is not unusual to find yourself in a need to borrow a very small amount of money to pay for certain home-related issues.
You might need money to buy a house costing less than $100,000 in some remote areas.
You may want to go for an addition or an extension in the present structure of your home.
There are several other reasons that may cause you to borrow an amount far less than the amount usually offered under a standard mortgage lending solution. If you go to a mortgage lender with such a modest loan requirement, more often than not, your application is likely to get turned down.
What would you do then?
Well, try a personal loan.
Remember an unsecured personal loan does not require collateral, so it is generally free from any kind of financial risk. This means your equity in the asset you own will remain unaffected in case of a personal loan. Also you are unlikely to lose the most valuable asset of your life in case of a default.
Other advantages of a personal loan over a mortgage loan may include the following:
- It is used for small borrowing amount, usually less than $100,000, which is generally not possible to obtain from a mortgage lender.
- It can easily be availed if you have a regular job and your credit rating stands in a good position.
- It is an unsecured type of loan and it also involves less documentation and other formalities to obtain.
- It offers flexibility in repayment.
- A personal loan usually comes with a short repayment term with easy monthly installment options.
The flip side is the rate of interest that tends to be higher in case of a personal loan. Nevertheless, you normally pay less in interest over the term of the loan as compared to a mortgage loan. This is because the period of the loan is significantly lower than that of a mortgage.
If you calculate the total interest you would need to pay over the period of a mortgage, which is generally more than 20 years, you will find that the final amount has just doubled the original amount you borrowed.
At the same time, a personal loan can help you pay off sooner, so you would be able to use your money in other things then. The most important thing is that your mind would be relaxed as you know that you have been relieved from a burden called debt.
A personal loan might work in certain situation, such as when the borrowing amount is too low to be qualified for a mortgage loan. But you must be aware of the high interest rates that come with such loans. If you have a very good credit score and are in a similar situation, you can go ahead with the lowest interest rate available in the market.