You can borrow a personal loan from any financial institution or bank. Personal loans are classified under the general purpose loans. This loan can be used to meet your personal needs such as payment of hospital expenses, consolidating debt, home repairs or improvements any much more.
These loans are also used for catering other expenses such as fees payment and paying for holiday trips. The borrower is expected to meet some pre-requisite qualifications when obtaining these loans. Here are some of the characteristics of personal loans that you need to know.
They are secured
This means as a borrower you are not required to have any asset to qualify for a loan. This makes it harder to obtain such a loan since lenders are unable to claim your asset or any other property in case you are unable to repay your loan. However, other actions can be taken by the lender if the borrower fails to repay the loan such actions include hiring collection agencies or filing a lawsuit.
Most of the collection agencies are known for using intimidating tactics such as constant harassment even though this is illegal. The loan amounts offered are fixed rating are offered loans at a lower rate as compares to people with a poor credit rating.
These loans are fixed
The amount offered is based on the income of the lender, credit rating, credit history and borrowing history. However, there are some banks which offer pre-fixed amounts as part of the personal loans.
They have fixed interest rates
The interest rates on loans do not vary depending on the repayment period. The interest rates on the pre-fixed loans are mainly based on the credit rating. This means that individuals with a good credit rating can get loans with low interests. They also offer loans with variable interest rates. Loans with varying interest rates are sometimes difficult to manage when making the payments.
These loans have fixed repayment periods
The repayment period for the personal loans is usually spread over a fixed term. The repayment period for the short term loans ranges between six and twelve months while for large amounts can be scheduled over five to ten years. This means that long-term loans have high interest rates due to the longer repayment periods as compared to the short term loans.
Affects credit scores
The credit bureaus also monitor personal loans. The account details of your loan are submitted to this body by the lenders. Default on payments is likely to affect your credit rating thus reducing your chances of securing future loans.