In a single lifetime, you will encounter several types of loans you may avail of. There are car loans, home loans, and even student loans– but arguably the most common loan you will ever encounter is a personal loan.
What are personal loans?
Unlike the other types of loans mentioned earlier, personal loans do not have a specific purpose. You can use it to pay bills, augment capital for your business, or even fund a big purchase for the family.
Unique characteristics of a personal loan
Personal loans rarely require collateral. It’s the kind of loan you turn to when you are in need of instant cash.
2. Higher interest
In lieu of collateral, lending institutions charge higher interest rates to compensate for the risk. If you are getting one, be prepared to pay between four and 30 percent in interest.
3. Less strict requirements
Most institutions just require valid identification, income documentation, and a duly-accomplished application form. Despite the lax requirements though, keep in mind that getting a personal loan will greatly affect your credit score. So only apply if you are able to pay it back diligently, or you’ll end up jeopardizing your future chances of getting a home/car/business loan.
How to avail of a personal loan
Step 1: Choose your type
Salary loans and overdraft loans are just some of the different types of personal loans. Make sure you look into each one, taking note of the features and benefits offered by your lender, so you can find one that best suits your needs.
Step 2: Prove your income
Personal loans may be less complicated than other loan types, but you still need to convince lenders that you’ll be able to pay it back. Prepare documents such as payslips or tax return forms to do this.
Step 3: Have a decent credit score
It’s the lender’s prerogative whether or not they will consider your credit score for something as simple as a personal loan, but it’s still best to have a decent score to be sure.
How to pay back a personal loan
Another thing unique about personal loans is that repayment options are extensive, and usually flexible. Lenders will suggest a schedule according to your capacity to pay, but you can always pay the full amount anytime you are able, without having to shore up a premature termination fee.