A personal loan is a kind of loan that is granted for personal use. The borrower is free to use the money as he or she likes. This is, however, not the main difference between a personal loan and the other types of consumer loans. The features that set it apart from the others are as follows:
- It has a fixed term that ranges from one year to five years
- It has a fixed interest rate
- It is generally an unsecured type of loan
- The rate of interest is significantly higher than those of most common loans
- The interests do not generally qualify for a tax deduction
Despite the severe limitations, personal loans are popular because of the fact that these are extremely easy to obtain and there is very little documentation required.
The borrowers only need to possess the following eligibility in order to qualify for the loan.
- US citizenship
- Over 18 years of age
- Enough income to make monthly payments and pay off the loan
- Requirements limited to personal, family or household purposes
- A clean repayment history with no instances of bankruptcy
- A good credit rating
The last two criteria are not mandatory at many lenders. Such lenders are specialized in offering bad credit personal loans. This is what makes a personal loan extremely popular and, at times, the only option for borrowers.
Personal loans are generally unsecured, which means that the borrowers do not need collateral for the approval of a loan. As the lender has more risk in offering such loans, they tend to minimize the risk by keeping the interest rates higher and the payment term lower.
If you are in need of a fund in an emergency situation, then a personal loan is probably the best option. It is certainly better than a revolving credit that requires you to pay a higher interest rate. The credit card company also requires you to pay only a fraction of the balance. This has a bad impact on your financial situation as the balance becomes unmanageable over a period of time.
You can use the proceed of a personal loan to pay off credit card balances and pay for expenses on medical treatment, education, home improvement, household purchases, vacation, and wedding, to name just a few here.