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Friday, 21 August 2015

Things You Should Know About Personal Loans

There are different kinds of loans that people with an urgent need for money can apply for through financial institutions such as banks and other money lending services, provided that have something to offer in return as a form of collateral or any kind of assurance that they can give to lending institutions as to hold on to their obligations. There are however, some types of loans that do not need any form of collateral from it's borrowers, most particularly in the category of personal loans. Personal loans are general purpose loans in which the money that the lender approves you with is used on your own discretion. Actually, personal loans are more difficult to be approved upon by most lenders as it is often based upon strict requirements that most potential borrowers find hard to comply with. If you ever find the urgent need to apply for a personal loan with a banking institution or a lending company for that matter, it is best to know all the needed requirements in order for you to find out if you have a fair chance of getting approved.


Personal loans have no assurance of security:
Given the fact of the nature and principles that constitute a personal loan, it is in fact a loan that offers the lender no such form of security and assurance that a borrower would be able to comply with paying up their obligations to the lender. It also means that the loan in which the borrower would get upon their approval will not be needing any form of asset as a collateral, in which case that when a borrower defaults their obligation on a loan, the lender will have no assurances of getting back the amount that the borrower had availed. This is one of the reasons in why personal loans have a higher disapproval rate than any other form of financial loans. The lender usually recourses to reporting late or bad payments to the credit bureaus, hiring a certified collection agency to collect bad debts and filling legal lawsuits against borrowers who fail to comply with payments. Either way, such incidents will put a bad credit record on the borrower which will make it difficult for them to avail any form of financial loans in the future.
Personal loans have fixed interest rates:
Despite of the high rate of disapproval, personal loans are still the most favorable method of availing emergency funds for various uses as it has a fixed rate of interest compared to other conventional financing methods that have fluctuating interest rates. Personal loans can vary in amount from $500 to $50,000 dollars, which solely depends upon how good or bad your credit rating is. Having a good credit rating means that you are given the benefit to borrow an even bigger amount of money compared to other applicants that have a less favorable credit score. Some banking institutions have a minimum amount which you can borrow or you may even well be able to get an even higher loan amount at a bank that you already have an account with.
What's good about personal loans is that the contracted interest rates are fixed for the whole duration, until such time that you have completely complied with paying off all of your financial obligation to your lender. Again, having a good credit score would lower the rate of interest of the amount of the loan that you have availed from your lender. Interest rates is the cost that you pay for borrowing money from your lender, in which is how banks and lending companies earn from your need to borrow money, however, there are banks and lending institutions that adjust their interest rates as a means of appropriately anticipating the possibility of you failing to comply with your monthly financial obligations.

A Fixed Payment Period:
Given the fact that you have been approved because you have a good credit score, the bank or lending company will also try to determine the best possible terms of payment that will be based upon your capacity to pay and the amount that you would like to avail which will depend on the combination of how much you can pay and credit rating. Banks and lending companies have a fixed payment period which will give both the lender and the borrower both the convenience of time in regards to payment schedules. The most common payment terms have 12, 24, 36, 48 and 60 months respectively as the time frame in which the borrower can conveniently choose how long or how short they can comply with fully paying up their financial obligations. A shorter period of 12 months would mean a bigger amount in paying up the principle amount of the money that the borrower has availed, which would lower the interest rates accordingly. A longer term of payment would mean adjusting the principle amount of the money that the borrower has availed, but increasing the amount of interest. Since this will be a fixed rate of payment, any attempt to pay off the total amount of the money in advance, would incur a penalty in behalf of the borrower. It should be put to mind that banks and lending institutions would like to maximize the potential of the amount that a borrower has availed from them and even though a borrower would like to finish their loan obligation, even before the contracted time, the lenders will always earn from this in all possible ways that they can. It is also best advise to learn the basics of how to become an accountant in order for you to fully understand the accounting principles of evaluating interest rates in regards to personal loans.

The easiest way to apply for a personal loan:
To tell you the truth, personal loans are made for people who have existing credible accounts with any banks that can support their clients validity of having a verified account with their institution. The advantage of this is that you can loan a bigger amount of money that you can use for your own personal use. Lending institutions such as banks can easily approve anyone who passes their requirements such as being employed for at least 6 months, has a monthly salary that will not fall below 30% of the loanable amount that a borrower wishes to avail, has a good, clean credit record for the past 6 months and has no outstanding liabilities with any financial institutions. Banks and financial lending institutions do get a bit nosy sometimes in regards to the purpose of where you will be spending the money. If you will be very honest with your intent, they may even recommend some sort of special financial arrangement that may even help you with your loan application as to appropriate it with the purpose of your needs.

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