What is a Personal Loan?
A personal loan is a loan issued by the lender, which is exclusively a private institution. Personal loans aren’t issued by federal institutions, but by banks. They consist of a preset amount of money offered to you at a relatively high-interest rate. There are many different types of personal loans, and all have varying interest rates. They’re used for a multitude of things, including anything from personal expenses to debt consolidation loans.
Personal loans are a popular choice for most people, as they allow unmatched financial freedom. They’re usually used to purchase things such as cars, remodel houses, and even on vacation by some people. When you have a personal loan, the possibilities are endless, but you have to keep a couple of things in mind if you want to stay safe. One thing that adds to the popularity of personal loans is the number of options you have. With different issuers offering different packages, you can truly find a loan option that perfectly fits your unique needs – you just have to look hard enough.
The Types Of Personal Loans
Personal loans aren’t just one thing – they differ widely from one another. Based on a wide range of factors, the interest rates, amounts of money, and APR will vary wildly. There are many different types of personal loans – and we’ll be exploring most of them below.
Secured & Unsecured
Personal loans are more often than not, unsecured. That means that they don’t require any collateral, and that’s the main reason why their interest rates are so high. Particular issues will let you secure your personal loan, and put in your property as collateral. If this is an option, then your interest rates will drop significantly. If you want to decrease your interest rates further, you might want to opt for a downpayment.
Fixed-Rate & Variable-Rate
Fixed-rate loans are loans that have a fixed monthly pay-off installment. That means that you’ll have to pay off a preset amount of money each month. Most personal loans are fixed-rate, but not all of them. On the other hand, variable-rate personal loans don’t follow this system, as they are tied to a benchmark rate set by the lender. As the benchmark rate fluctuates, so does your monthly installment and total interest.
Debt Consolidation
Debt consolidation personal loans are usually taken out to resolve all of your debts and put them into one. That takes the pressure off your shoulders and allows you to pay one fixed monthly installment rather than multiple. It simplifies your debt payments significantly and usually comes with a medium interest rate. Also See: The Loans Guide
What are the Interest Rates and Fees?
Since most of these loans are unsecured, the interest rates will be quite high. If you want to cut down on your interest rates, you’ll need a good credit score, deposit, or collateral. Higher loans have lower interest rates, meaning that if you want to cut down on interest, you should borrow more money. The loan APR varies based on the issuer. Since banks and other financial institutions always issue these types of loans, the APR and interest rates are up to them.
Pros and Cons of Personal Loans
Personal loans allow people to invest in the things they want. If you’re looking for a loan that will work alongside you for any larger investment, personal loans will go. Personal loans, while highly beneficial, do come with a couple of drawbacks. Below, we’ll discuss some of the main benefits and drawbacks of personal loans.
What are the Advantages:
- Fast approval
- Unsecured or secured
- Fixed or Variable rate
- Multiple variants
- Relatively flexible
- Relatively low APR
- Debt simplification
What are the Disadvantages:
- High-interest rates
- Debt transfer
Bottom Line
Personal loans are a good option if you can curb the high-interest fees. You can do that in several different ways – but unless you do so, you might find it’s more expensive than it’s worth. You need to keep all the costs and fees in mind when you’re taking out a personal loan, and if you do so, you’ll have a good time.