Whenever you need money for something that does not fall into the typical lending box such as a car loan or a house loan, a personal loan can come to your rescue. The reason may be anything – getting treated for an ailment, buying a two-wheeler, going on a holiday, credit card repayment, refinancing or taking up an educational course.
One can easily get any kind of personal loan such as a medical loan, two-wheeler loan, education loan, or a travel loan without any collateral. You need not even specify the reason for which you need the money. All that you need to specify is the amount of money you need and the time period within which you will be able to repay the loan.
Features of Personal Loans
- Personal loans can be taken by anybody as long as they are able to repay the loan within the stipulated time period.
- Personal loans generally charge a higher rate of interest if unsecured. To borrow money at a lower rate of interest you can offer a security such as your vehicle or home.
- You can avail an unsecured personal loan at a lower rate if you have a good credit score. Having a good credit score would main making your payments on time and having a good debt-to-income ratio.
- Personal loans usually come with a fixed repayment period, which could be 12 months, 24 months or 36 months. The longer the term of your loan, the lower will be your monthly payment. However the amount of interest that you pay over the term will be higher. Short term loans often necessitate high monthly payments; but they incur low overall interest as you will end up paying your principal amount faster.
There are a few things you need to look for, while borrowing a personal loan:
Make sure there is no prepayment penalty
While some lenders do not charge you anything extra if you pay back the loan before the actual repayment date, there are others who charge exit fees or a prepayment penalty. Make sure you understand the terms before signing the agreement.
Prevent Accidental overdrafts
While borrowing a personal loan online, you may have to connect your loan with your checking account for automatic withdrawals. In such a case there is always the risk of your account being drained or overdrawn. To avoid such a situation it is important to talk to your bank and set up a low balance alert.
Beware of Scam Artists
There are many scam artists out there who resort to unfair practices and charge exorbitant rates. If you get caught with one such lender, you end up having a tough time getting out of your debt. Therefore it is always better to look for reputed lenders who are registered with Better Business Bureau or Federal Trade Commission.
Personal loans can definitely help you get out of tough situations in life; but do your homework thoroughly and compare your options carefully before settling on the best one.