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What Is A Personal Loan

A loan is a financial transaction where a lender agrees to give money to a borrower which must be repaid in full plus the interest earned within the agreed period. A personal loan is a loan smaller than a mortgage and is mainly used to service a car, renovate a home, consolidate debt and finance a vocation among other personal things. It usually takes between one to five years maximum. It can be used to consolidate many loans into one loan allowing you to make one monthly payment that is less than the many loans combined.

A personal loan entails borrowing a specific sum of money from any financial lending institution for personal use. The borrower is then expected to make regular monthly payments to the lender to repay the sum borrowed plus the interest earned. They are preferred by many people because they enable them to make huge purchases or investments without having to save first.

Types of personal loans
Lending institution offer different loans types. They include; fixed interest rate loans whose monthly payment amount remains the same for the whole term. Variable interest rates that offer a lower initial payment rate as compared to fixed interest rates. Lending institutions can adjust the variable interest rates upwards or downwards depending on the movement of the general lending rates. It the rates shoot upwards, so do your monthly payments and if they reduce, your regular payments reduce as well. Personal unsecured loans do not require security or collateral. However, they attract higher interest due to the amount of risk involved. If you the borrower are not able to settle the loan within the agreed period, the lender has nothing to repossess. Personal secured loans require a form of security or collateral and the amount of money offered is usually the equivalent to the value of the collateral. In this case, if the borrower does not settle the repayment within the given time, the bank has the right to repossess the indicated security as compensation.

Time frame
Each loan type has its particular time frame. Moreover, the lender can also determine the loan’s time frame. Personal unsecured loans run for about 12 to 48 months. Personal secured loans’ time frame may vary depending on the security provided by the borrower. However, they basically run for about 36 to 72 months. The determining factors are usually the loan lenders, borrower’s preferences, lending rules that apply in Singapore and the type of loan the borrower choses to take.

Loan size
The amount of money that a financial institution or bank offers is determined by the borrower’s credit score and collateral value if any. An unsecured loan can start from 500 dollars to about 25000 dollars if borrowed in big banks and your credit score stands out. The secured loan amount is determined by the collateral value but, in rare cases, the risk involved may affect the amount of money you get.

There a numerous way of applying for loans. They include; handwritten applications, internet applications and over the phone. Depending on the mode of application, incentives are offered to the borrowers to set up payments that are deducted from an active bank account every month. Internet lenders send money to the given account number and deduct from the same account at the end of every month until they have full recovered their money.

Though personal loans are easy to acquire, they should only be taken out when necessary. Consider applying for one if you have an emergency or need to clear huge bills. They are a form of debt that can cause financial constraints in future especially if you are charged high monthly payments that you are not able to settle.