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Personal Loans - What You Need To know |
A personal loan is a kind of obligation or
debt that is generally made for family or domestic purposes. It is
not meant for business, or for long duration mortgage use. The
financer lends money to the borrower, and the borrower needs to
return the full amount to the lender, but not necessarily on a
regular basis. It is an interest-based debenture loan. It could be
both a secured as well as an unsecured loan. If it is a secured
loan, the lender asks for collateral, whereas in the case of an
unsecured loan, there is no demand for any guarantors or added
assets.
However, though lenders may not require
guarantors, a few banks do ask for them, along with collateral in
the form of added assets. So, apparently, there is no standard form
of rules. Variations are inevitable in case of terms and conditions
as well as the eligibility criteria, depending on the fundamental
principles of lenders. You need to scrutinize these in advance to
avoid future complications.
Purpose of a Personal Loan
This loan can be used for any purpose, without any supervision over
its ultimate use. Usually, personal loans are used for high priced
incidentals like tuition fees related to school or college,
furniture, television sets, washing machines, cars, bikes and the
like. Or, to fulfill urgent financial needs, be it a grand function
in the family or a vacation and so forth. Such loans enable you to
take care of a variety of expenses like travel, medical, marriage,
honeymoon and so on.
You must remember that the item that
needs to be financed through a personal loan should have a
substantial life, at least as long as you clear the debt. For
example, an educational loan would certainly have a lifetime value,
so taking a hefty loan for it would be quite justified. But if you
need to take a car loan, and take around four years to repay it,
then the car should at least remain functional for that period of
time.
Types Of Personal Loan
Basically, there are
three types of personal loans, namely, installment loans, balloon
loans and single payment loans. They are as follows:
-
Installment Loan: These are loans in which you need to return the
amount of money borrowed, along with the interest, in monthly
installments over a pre- assigned time-period. This is the most
popular kind of loan and people generally opt for this kind of loan.
Auto and car loans come under the category of such loans.
- Balloon Loan: These loans require you to pay installments over a
set period of time along with a comparatively greater amount of
money at the term-end. You must ensure that your income level does
not decrease during the loan term so that you can afford to meet the
balloon amount in the end.
- Single payment Loan: This
involves payment of the entire amount of money taken as a loan,
along with the interest rates, at a certain date in the future.
Personal loans allow you to overcome an acute financial crisis, and
avert the necessity of mortgaging your home, jewelry or other such
prized possessions in order to meet your immediate fund
requirements. They help you to keep your family and your assets
secure while overcoming unavoidable circumstances, without suffering
undue loss.
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