Personal loans are consumer loans provided for your use at your own discretion. Some common reasons that consumers get these types of loans include paying medical bills, paying for requested vacations, making changes to their house, or even financing a wedding. This method of financing can be guaranteed or unsecured and has a fixed amount of loan and term, which means you get the funds once and make fixed payments at predetermined intervals.
Some personal loans have prepaid charges, while others allow you to make additional payments at no additional charge, so be sure to read the fine print and know all the details about the loan to make sure you understand the terms and conditions.
Where to get a personal loan
Personal loans can be obtained from banks. In general, consumers start with the bank where they have their payroll and savings accounts, since they have a relationship with that bank and sometimes have a better chance of obtaining more favorable conditions. Some banks offer a discount on the rate if you choose to have your payments automatically withdrawn from the account you have there. If you do not have a bank or want to hire the best rates, you can also get this type of loan online from a variety of lenders. The process is simple and can be done through the Internet and telephone for the most part. Some lenders offer you the money in just 24 hours, but you have to do some research first to make sure the bank is reputable and the terms favorable.
Verification documents to provide
Once you decide on the lender you want to use, you will have to provide the proper documents to verify who you are, your income, proof of where you live and where you work. Each lender differs in the documents they require, but be prepared to show the last payroll you are a salaried employee or 2 years of your tax returns if you are self-employed or work on commission. You will also have to provide information about your company so that the bank can verify the information it provides and any previous address if you changed your home last 2 years.
The definition of a guaranteed loan
Personal loans can be guaranteed or unsecured. Guaranteed financing occurs when you put collateral in exchange for the loan. The guarantee on this loan might surprise you though – you are not putting the guarantee on the item you buy, such as with a mortgage, when your home serves as security. With personal financing, you have the option of using one of the following elements for the guarantee: savings account, car ownership, or the value of the home. If you apply for the loan with the bank you have your payroll, savings account and have a significant amount in the account, getting qualified for the loan will be quick and easy since they already have the guarantee. If you want to use car equity or your home, the loan amount varies depending on the amount of capital you have.
The definition of an unsecured loan
An unsecured personal loan is the opposite of the safe option. In this scenario, the approval of your loan is based on your solvency. Due to the fact that you do not give the bank any type of “insurance policy” in the form of collateral, you must have high credit and other positive rating factors to obtain this type of loan. Banks look for a record of stable employment (which keeps the same job for at least the past two years with equal or greater income), a low amount of debt compared to your gross monthly income, and a credit history without spots during at least the last two years. Banks require much higher rating factors for this type of loans, since they have nothing to guarantee that they will repay the loan in case of default on your payments.
The interest rates
Interest rates vary widely in personal loans. Banks offer different rates for each category, which means determining whether you will get a guaranteed or unsecured loan will help you determine the range of interest rates you are in. Generally, the rates you pay are higher than any other type of loan because of your level of risk. In the event that you can secure the loan with equity in your home or car, you can lower the rate slightly. Generally, secured loans start around 5 percent, but can reach up to 10 percent and unsecured loans start around 10 percent and go up to 30 percent. The rate that the bank gives you depends on the amount of the loan, the duration of the term, your credit history, income, employment and debt ratio.
Personal loans without requirements
The good news is that bad credit does not automatically mean you will not get a personal loan. If you are in dire need of funds, there are entities that will provide them. You will have to pay a high price however. Sometimes, if you are starting over and trying to get a new start, however, it may be worth the price you pay. The financial products for people with «bad credit» are fast loans or mini-credits, which offer money in 10 minutes without requirements, being able to get the money without endorsement, without payroll or pension, and even being in lists of defaulters like Financial Credit Institutions .
Breach of your payments
If you apply for a personal loan because you are on your knees in debt and then discover that you can not keep up with the payments, you could find yourself in trouble in one of two ways.
If you have a secured loan, the bank will appropriate your collateral. This usually happens after several missed payments and attempts by the bank to get the money. Due to the fact of placing your items for the guarantee, the bank does not have to provide you with a warning, since your items will be recovered. Next, the bank sells these items to help pay off your loan and the fees accrued throughout the process as a lawyer must be involved in the recovery.
If you have an unsecured loan, the bank has nothing to recover. In this case, they should come after you and your money. Normally, the lenders will send your account to your collections department after two missed payments. After a few months of trying to communicate with you via phone and mail, they will take your account to a collection agency. This company will then take over the account, charging extravagant fees to make a profit to take over the loan. Then you are on the hook for more than just the principal and interest if you plan to make good the loan. If the collection agency does not resolve your loan, then they can sue you for the loan amount plus the fees that accrue during the process, which allows you to come after your money and / or any assets you own.
Personal loans can be a great way to get the funds you need, but make sure you get into the process with the right knowledge of what the bank provides. You can expect to pay interest rates much higher than any other type of loan and submit yourself to the scrutiny of your financial situation to make sure you can do well in payments. In the end, this type of financing can help you get out of a financial problem.