Every year, millions of people all over the world take advantage of personal loans to consolidate debt, make home remodels/improvements, pay for unexpected expenses, and much more. And statistics keep showing that the number of people with personal loans is continually increasing. In the United States, for instance, data obtained from Trans Union shows that in recent years, that number has almost doubled from 15 million to 30 million. And that’s not far from what is happening around the rest of the world.
But the question remains, why are personal loans so popular? Well, apart from the low-interest rates on offer to consumers with good credit scores, personal loans mainly comprise smaller loan amounts compared to other types of loans. And that is not to say that they are the best go-to solution for everyone. But if you are thinking about placing an application for a personal loan, here are three facts you should know about getting a personal loan.
- Personal Loans are Installment-Based
A personal loan falls in the category of installment loans. That means you can borrow a fixed amount and repay it with the accrued interest in monthly installments over the term length agreed upon for the loan. The typical term length of a personal loan ranges from 12 months to 84 months (1 to 7 years). Upon the completion of the repayment, your account is closed down, although you can submit a fresh application if you need more money and discuss new terms going forward.
Terms of a personal loan vary from one lender to the other. But the typical amount could be somewhere between $1000 to $100,000. The amount you qualify for after the underwriting process will depend on how healthy your credit score is. Overall, the more confident lenders feel about your likelihood of paying them back, the more money you are likely to qualify for.
- Personal Loans Require Zero Collateral
Personal loans fall in the broader category of unsecured loans. This means that at the time of borrowing, you are not required to provide a prized asset as collateral. The reliable licensed money lender at https://www.bugiscredit.sg/ says that based on their flexibility, personal loans are by far the most accessible type of loans. And unlike secured loans, the lender of personal loans is not legally mandated to take your property or assets in the event of repayment default.
The lack of equal-value that is guaranteed with collateral makes personal loans quite rare compared to say, secured loans. Even without the need for collateral, lenders can choose to take action against which wouldn’t involve automatic seizure of your car, house, or any other asset that is deemed to be of equal value. The most common action taken by lenders of personal loans include:
- Making late payment reports to credit bureaus.
- Filing a lawsuit against borrowers.
- Hiring a collection agency to recover the dues on their behalf.
- A Personal Loan Has a Fixed Repayment Period
The period agreed upon in the terms of a personal loan is mutually decided between the borrower and the lender. After that, the borrower submits the application whose eligibility is determined through the underwriting process.
The loan term varies based on a number of factors as pertains to both parties, and the length of the loan repayment period is used to establish the interest rate. Personal loans are considered quite versatile as they can be utilized on a number of things. For that reason, they are the most preferred loan types for a majority of people.
- Personal Loans Have a Fixed Interest Rate
With a personal loan, fixed rates are considered advantageous from a borrower’s vantage point. Fixed interest rates are easy to manage as you wouldn’t get surprises from rate hikes, which is easier to budget for. And while the interest terms are fixed, the rate varies from one institution to the other.
- Who is Eligible for a Personal Loan?
Both salaried and non-salaried folks are eligible for a personal loan. The minimum age requirement for a personal loan applicant is 21 years, while applicants over 60 years are not eligible (if they are salaried). For the self-employed folks, the upper age limit is set at 65 years.
Most banks have the practice of walking clients through the loan types and the terms to help them decide the best financial choice based on their need for borrowing. And while that is so, it is helpful to have a general idea of the options available from lenders before walking through their front doors.
Personal loans, being the most popular among the majority of people, have several aspects as discussed herein. And before you sign up for a personal loan, take note of some of the facts highlighted in this post to positively impact your financial life and decisions.