Personal loans are special types of loans which could be borrowed to meet any of your financial requirements. You may need a personal loan for various purposes. You can even use the fund for things like buying a car, taking part in your dream cruise, paying back outstanding loans etc. In a nutshell, personal loans could be used to pay for any emergency situation you are going through.
Before you rush to your nearest bank to get a personal loan, make sure that you have read this in-depth guide first. This will provide you with a complete understanding of the whole process.
Types of Personal Loans
Let’s start the discussion with the different types of personal loans. Among the various personal loan types, two are most popular –
- Secured Loans and
- Unsecured Loans.
Secured loans need some kind of guarantee like your home, car or other valuable properties. If you fail to repay the loan, the bank will sell the properties to get their money back. This type of loans comes into place when you are taking a large amount of money.
On the other hand, unsecured loans don’t require any such bonding. In regard to these loans, the bank assesses your credit history and tries to determine whether you are able to pay back the borrowed money within the fixed time frame. These loans are limited to small to medium amounts only.
Some other kind of personal loan types include credit card loans, payday loans etc. Credit card loans have a fixed limit and you have to keep your spending within that limit. Some credit card company offers zero interest if you repay the loan in a timely manner. And the payday loan is great if you need money as quickly as possible. However, they often come with a very high interest rate.
Meet the APR
If you are looking for easy personal loans, you should definitely be familiar with the concept of APR, which is the abbreviated form of Annual Percentage Rate. This is the total amount you have to pay per year as the interest and the other charges of your chosen financial institution.
You have to pay the APR along with the fixed installments of your personal loan. Therefore, APR could be termed as the total cost of your loan per year. Before you finalize the loan, make sure that you fully understand the APR for your loan.
The Loan Amount and the Interest
As we have seen in the personal loan types section, the amount of loan depends on the type of loan you are getting. If you need a larger amount, your chances are better with a secured loan. But if you don’t need a large amount, going for an unsecured loan will be the best choice for you.
Most financial institutions will encourage you to take larger amounts with reduced interest rate. However, you should never go for an amount that is way more than the required amount. At the end of the day, you still have to pay the loan back.
And when it comes to the amount of interest for your loan, you have to consider several things. First of all, the interest rate is primarily based on your loan type and the interest rate. The amount also depends on the duration of your payback period.
Longer period loans are generally provided with lower monthly installments. However, these loans also come with considerably higher interest rates.
In order to ensure that you are getting the best possible terms, make sure that you are collecting offers from several sources. Once you get the offer details, compare them and ask around the people who have real experience of dealing with the banks or other financial institutions.