Personal loans are loans that you can avail to pay for any of your expenses. When you apply for a personal loan, you do not have to cite any reason for availing it. With a personal loan in hand, you have a freedom to spend on anything you want to. However, it is recommended that personal loan must not be used to pay for daily expenses.
There are several benefits offered by personal loans. Many lenders do not give loans unless the borrower has a good credit rating history. Once you avail a personal loan and repay it as per the repayment terms, you will acquire a good credit rating. Another benefit of availing a personal loan is debt consolidation. If you have a taken a number of loans, you may avail a personal loan to consolidate your loans into one manageable loan.
The rate of interest on personal loans varies considerably. The rate of interest on secured personal loans is lower than the rate on unsecured personal loans. Secured personal loans are less risky for lenders because they are given against collateral. The high rate of interest on unsecured personal loans compensates for the risk that is associated with such loans. Personal loans carry two types of interest rates - fixed and variable. In case of personal loans with fixed interest rate, the amount of interest paid in the monthly repayments remains the same throughout the loan period. In case of personal loans with variable interest rate, the amount interest in the monthly repayments may go up or come down within the loan period.
Depending upon the loan period, personal loans are of two types - payday loans and bank signature loans. The loan period of a bank signature personal loan is usually one year while the loan period of a payday personal loan is less than one year. Payday loan is usually taken when there is an urgent requirement of money. It is repaid as soon as the borrower receives his/her salary.
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