Mortgage and Loan Strategies Part Three: Personal Loans

Even the best of us can experience a temporary cash flow problem or financial crisis. Perhaps we need to pay for necessary medical expenses, a wedding dress, braces for all of the children, plumbing repairs, or a new roof. Maybe we have experienced a temporary loss of employment. Whatever the reason, personal loans are the typical solution.

What is a Personal Loan?

A personal loan is taken out for a small amount of money borrowed for a short time. The typical lifetime of a personal loan is two years (but some extend to 5). Some agencies may offer some flexibility with the loan term. A final due date or closing date is provided with all personal loans. The entire balance of the loan must be paid on this final day in full.

The actual amounts of money borrowed with personal loans vary, but, generally, the amount is smaller than the amount financed with a home equity loan. Likewise, the amount of borrowed money is also a bit larger than one would feel comfortable borrowing from a friend.

Types of Personal Loans

Two basic types of personal loans exist: secured and unsecured. A secured loan requires that the borrower provide some type of collateral. Collateral is some form of property that the lender can repossess should the borrower default, or fail to pay, on the loan.

An unsecured personal loan does not require any type of security or collateral to be offered by the borrower. In general, individuals with good credit ratings can acquire an unsecured personal loan, whereas individuals with bad credit ratings must acquire a secured personal loan. In fact, the collateral put up for a secured loan must meet with the approval of the lending agency as sufficient for repayment of the loan should the borrower default or fail to repay the loan.

How to Get a Personal Loan

Personal loans, secured and unsecured, are available at the following types of locations:

• Banks
• Credit Unions
• Online lending agencies
• Financial agencies

Acquiring a personal loan is as easy as filling out an application, providing any documents that are requested, if any, and selecting the amount of money that you need to borrow. To acquire a personal loan, you will most likely have a credit background check.

Additionally, you will also need to provide proof of identification and employment. In general, acquiring a personal loan is easier at your personal bank or credit union since they already have an established relationship with you.

Many banks will encourage an individual to acquire a credit card loan with that bank to get them through their time of financial need. Unfortunately, this type of loan often comes at a higher price. The interest rate is typically higher than with any other type of conventional loan. Moreover, minimum payments are required each month, but their total may not pay the balance off in full by the end of the loan's term.

Several benefits accompany personal loans. Specifically, they are short term, quick, and easy. The disadvantage of this type of loan rests in the higher interest rate.

Continue reading: Mortgage and Loan Strategies Part Four: Payday Loans