Short Term Deposits Are Sed To Finance Long Term Mortgage Basic Facts About Personal Loans

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Basic Facts About Personal Loans

Personal loans are generally general purpose loans that can be taken from a bank or financial institution. As the wording suggests, the loan amount can be used for ‘personal’ use at the discretion of the borrower such as meeting unexpected expenses like hospital expenses, home improvement or repair, debt consolidation etc. or even for educational or commuting expenses. holiday However apart from the fact that it is very difficult to get these without fulfilling the pre-requisite qualifications, there are some other important factors to know about personal loans.

1. They are unsecured – which means the borrower does not need to put up a property as collateral to get the loan. This is one of the many reasons why getting a personal loan is difficult because the lender cannot automatically lay claim to the property or any other asset in case of default by the borrower. However, the creditor may take other actions such as filing a lawsuit or hiring a collection agency that in many cases uses scare tactics such as persistent harassment even though these are strictly illegal.

2. Loan amounts are fixed – Personal loans are a fixed amount based on the borrower’s income, borrowing history and credit rating. But some banks have pre-fixed amounts as personal loans.

3. Interest rates are fixed – Interest rates do not change for the duration of the loan. However, like pre-determined loan amounts, interest rates are largely based on credit ratings. So, the better the rating, the lower the interest rate. Some loans have variable interest rates, which can be a debilitating factor because payments may fluctuate with changes in interest rates, making payments difficult to manage.

4. Repayment periods are fixed – Personal loan repayments are fixed over a fixed period ranging from 6 to 12 months for small amounts and 5 to 10 years for larger amounts. While this may mean smaller monthly payments, a longer repayment period automatically means higher interest payments than shorter loan repayment periods. In some cases, loan foreclosure comes with a prepayment penalty fee.

5. Affects Credit Score – Creditors report credit account details to credit bureaus that monitor credit ratings. In case of default in monthly payments, credit ratings can be affected reducing the chances of getting loans or applying for credit cards etc. in the future.

6. Beware of Lenders Who Approve Loans Despite Bad Credit History – Many such instances have been proven to be scams where people with bad credit history are persuaded to pay an upfront commission through wire transfer or cash deposit to secure the loan and the rest. without anything in return.

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