Personal loans are unsecured loans that are not backed by collateral. The loan grant is based solely on the paying back capacity of the borrower. Here are the some answers to these commonly asked questions regarding Loan like personal loans.
Personal Loan FAQs
• What exactly is a personal loan?
A personal loan is a means of borrowing money from a bank or any other financial institution without the need for submitting collateral. The loan grant is given in a lump sum amount wherein the borrower agrees to pay back the entire amount within a stipulated time period. The amount is divided into equal monthly installments that are decided by the loan officer. These installments include the interest amount as well.
• Are personal loans secured or unsecured?
Personal loans are usually unsecured loans. The loan approval is based upon the borrower’s ability to repay the loan. Some other factors that are included in the eligibility criteria are the credit rating, the monthly income and the other financial transactions of the borrower.
• How much can I borrow?
The amount that the borrower can take is not the same for all individuals. It depends on the repayment capacity of the borrower. Usually the highest amount of a personal loan grant is $20,000.
• How long would I get to return the loan?
The loan repayment period can range from anywhere between 6 months to 10 years. This period is fixed and the borrower needs to make repayments in the form of equal monthly installments.
• What is the cost of a personal loan?
There is a fixed rate of interest levied on the amount borrowed. The more the borrower borrows, the lower would be the rate of interest. The interest rate for the entire term is calculated into a single amount and is divided into equal monthly installments. This amount is added to the regular installments.
• What is PPI?
PPI is the Payment Protection Insurance that can be paid by the borrower to insure his loan amount. This amount is extra to the other charges taken. It helps pay the borrower’s monthly installments in case he is unable to pay on his own, due to illness or unemployment. You have to be very careful while taking a PPI and work out its entire cost before going in for it. It would be better if you check out the small print of PPI covers and see if it covers your specific needs. It is not compulsory to take a PPI cover, so you needn’t get pressurized into taking it in case you find it too expensive.
• Can the loan be settled before the repayment term?
Yes, the loan amount can be settled before the repayment term. But this service comes at an extra cost. These charges are to make up for the loss of the interest amount that the lender would have to face because of the borrower’s decision to repay earlier than the stipulated date.
• What should I watch out for?
One should be wary of the terms and conditions offered by the lender before he takes a personal loan. Read in between the lines and remember to add all the costs that you would have to incur to avail of the loan. Compare the costs involved and take the loan from a reliable lender who offers you the best rate. Also be very realistic about the repayment period and see if you can really afford to regularly pay back the loan installments.
• What are the risks involved?
While a personal loan is definitely the best option for all those who need fast cash, it is also very expensive. Take the loan only if you are sure that you will be regular in paying back the monthly installments.