Personal Loans 101

October 15, 2009 · Posted in Loans 

For most people, personal loans are fairly easy to get. Even those with poor credit or who haven’t established a credit history can generally get one. You’ll need to proof of income, employment and residence when you apply. Personal loans are a way to get the money you need to consolidate bills or to purchase an item you wouldn’t normally be able to buy with your available resources. People also take out loans to pay for a vacation or someone’s education.

There are two types of personal loans: secured and unsecured.

Secured personal loans usually have lower interest rates than unsecured loans. However, to get that lower interest rate you’ll have to offer the lender a piece of property to be used as collateral in case you can’t repay your loan. However, secured personal loans are a great way to re-establish your credit if it’s been tarnished.

Know what you want to use the loan money for ahead of time, then use that to determine the amount you want to apply for. Don’t let a high-pressure lender talk you into taking more for the same payment amount. All that will do is extend the life of the loan and cost you more interest in the long run. To save on interest, always take the shortest term and highest payment amount that you can comfortably afford.

If you’re using this personal loan to improve your credit rating, don’t blow it. Be especially careful to make all of your payments on time. If possible, pay the loan off early to save on interest. Improving your credit rating should make the process easier the next time you need to apply. It may even help you to become eligible for an unsecured personal loan.

It’s important not to miss any payments with a secured loan. If you find that you can’t make a payment for some reason, contact the lender immediately to work something out. This is very important if you’ve lost a source of income or faced some kind of emergency. Most lenders will try to work with you before reporting the personal loan as being in default. Since you secured the loan with your property, you’re at risk of losing that item if you can’t repay the loan. It’s in your best interest to find a solution to stay on track with the payments of a secured personal loan.

Unsecured personal loans are generally available to those who have good credit and a steady income. They have a higher interest rate, but you’ll have the peace of mind that none of your property is tied to that loan if you default on it. It’s still very important to make your payments on time. You don’t want to damage your credit rating and make yourself ineligible for an unsecured personal loan in the future. Follow the same rules as with a secured loan. Only borrow what you need, accept the shorted possible term that you can afford, and pay it back early if possible. These things will help you maintain your good credit and reduce the amount of interest you’ll pay on the loan.

Personal loans can be a valuable resource for those who need extra money for the better things in life. However, it’s important to consider the differences between secured and unsecured personal loans before committing to one. Most lenders are happy to take the time to explain which will work best for your situation and why. Be sure to ask questions if you don’t fully understand the process for a personal loan. Do your best to make your payments on time or ahead of schedule. Your credit rating is a valuable asset that you should always work hard to improve.

I’ve spent over 20 years working as a technical writer in the IT and telecommunications.

Check out my blog at Fast Loan Facts

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