Personal loans are one of many types of loans you can use to borrow money. These loans are typically general purpose loans that you can use at your discretion for things like consolidating debt or paying for an unexpected expense or small home improvement project. Personal loans are often more difficult to get and have strict qualification requirements. If you’re thinking about borrowing a personal loan, here are some things you know.
A personal loan means that you are not required to use an asset as collateral. If you default on a personal loan, the lender can’t automatically take a piece of your property as payment for the loan. This is one of the reasons personal loans are more difficult to get. The lender doesn’t have any asset to seize if you can’t make loan payments anymore. Even though the lender can’t automatically take your house or car, it can take other collection actions. This includes reporting late payments to the credit bureaus, hiring a collection agency, and filing a lawsuit against you.
Personal loans have a fixed amount.
The amount of personal loans ranges anywhere from ₦50,000 to ₦5,000,000 and depends on the lender, your income, and your credit rating. Unlike credit cards, personal loans are a one- time loan. You can’t borrow from the loan over and over the way you can with a revolving credit card balance. Payments toward the loan reduce the balance but do not open up available credit that you can borrow again.
Once you pay off the loan, the account is closed. If you need to borrow again, you’ll have to reapply.
Personal loans usually have fixed interest rates.
The interest rate is locked and doesn’t change for the life of the loan. Like the loan amount, interest rates on personal loans are based on credit rating. Generally, the better your credit score, the lower your interest rate. Lower interest rates are ideal because it means you pay a lower cost for borrowing the loan. Some personal loans come with a variable interest rate that changes periodically. The drawback of a variable interest rate is that your payments can fluctuate as your rate changes making it harder to budget for your loan payments
Personal loans a fixed repayment period.
You have a set period of time to repay your personal loan. Loan periods are stated in months, e.g. 6, 12, 24, 36, 48, and 60. Longer repayment periods lower your monthly loan repayment, but they also mean you pay more in interest than if you had a shorter repayment period. Your interest rate may also be tied to your repayment period. For example, you may have a lower interest rate with shorter repayment periods. Longer repayment periods also mean you’ll be paying on the loan for a longer period of time.
Beware of scams.
Watch out for scams, particularly if you’re shopping for a lender who’ll approve you with a bad credit history. Avoid any lender that guarantees approval without checking your credit history or who asks you to send money (especially via Electronic transfer or a cash send) to secure the loan.
A Personal Loan is a great way of overcoming periods of financial strain and can be a reliable way to cover all sorts of expenses. Whether you need it to pay for that sophisticated wedding planning and co-ordination service for your spectacular wedding in Lagos or you want to buy that hardwood Directors Chair and Morris chairs that you have always dreamed of. So, if you’re planning to take a Personal Loan, these are some of the things that you need to keep in mind. Also, ensure that you choose the right amount and time period to repay the loan before approaching a Personal Loan.
Article credit to jpmoney