Personal loan also known as consumer loan is usually granted to an individual person for personal use such as but not limited to medical payments, education expenses, college tuition, wedding expenses, house repair or extension, credit card payments, purchase of computer, refrigerator, air conditioner etc. or even for vacations. This loan can be either unsecured or secured by the asset purchased or by a guarantor / co-signer. Personal or consumer loans also called signature loans are usually unsecured loans because it is not secured by collateral and mostly approved on the basis of a promise to repay. Lenders therefore, approved personal loan on the basis of borrower’s credit rating, personal income level and ability to repayment. Consumer loan is usually granted for a fixed time period with fixed monthly payments terms. Since these loans are not secured by collateral to ensure repayment therefore, it has very higher interest rates than the secured home-equity loan.
Unsecured personal loan amount vary but usually run between $1,000 to $50,000 with 1 to 5 years payback time and interest rate between 6 to 36 percent. How much you can borrow is only based on your level of verified income, ability to pay and credit history. Some banks have a cap of $5,000 to $15,000 on the amount of personal loan you can borrow. The repayment periods are mentioned as number of months such as 12, 24, 36, 48 or 60 months. The longer repayment you choose the more interest you will be paying. The shorter the repayment period is the lower the interest rate. It is always your choice which option you like to go with.
Personal loan is an unsecured loan therefore, the lender can not repossess borrower’s property or assets in the event of non-payment. This is one of the reasons why Personal loan is not easy to get. The lender also pulls your credit history, examines your rating and set your credit grade. But if you can satisfy the lender the underwriting decision is quick because there is no collateral appraise process involved. Because interest rate and repayment for personal loan are usually fixed it is considered safer than credit cards. Repayment also improves your credit rating because credit rating system treats installment debts more favorably than revolving debts as common with the credit card payments. Personal loan also has lower rates than credit cards.