What is a Personal Loan

What is a Personal Loan

Need to pay for travel fare, wedding expenses, apartment rentals, home repair costs, tuition fees, car expenses, shopping sprees, or medical bills? Try applying for a personal loan.

What is a personal loan?

A personal loan is a type of loan in which the borrowed money is intended to be spent for personal uses. The purpose of borrowing money via a personal loan is to spend the the money for personal uses. As its name suggests, a personal loan is not intended for business purposes such as capitalising a business, expanding a company, opening a store, or buying a stock.

What are the types of personal loan?

There are four basic types of personal loan: a fixed rate personal loan, a variable rate personal loan, a secured personal loan, and an unsecured personal loan. A fixed rate personal loan involves a predetermined and unadjustable interest rate that remains the same for the duration of the loan. The opposite of a fixed rate personal loan is a variable rate personal loan. A variable rate personal loan involves an adjustable interest rate that is dependent on the different movements of the economic index and the various fluctuations in the market prices. A flourishing economy causes the interest rates to fall while a declining economy causes the interest rates to rise.

The difference between a secured personal loan and an unsecured personal loan lies in the presence or the absence of a collateral. A secured personal loan involves the presence of a collateral that serves as the security of the loan. It is an assurance that the lender will still get repaid, in the form of a property or a car, even if the debtor fails to meet his debt obligations. Unlike a secured personal loan, an unsecured personal loan doesn't involve the pledging of a collateral. Since there are no collaterals to secure the loan, the lender is usually very careful when it comes to approving loan applications.

How does one apply for a personal loan?

The easiest way to apply for a personal loan is to visit the lender's website and apply online. A personal loan application usually takes about less than an hour to complete. The information asked for in personal loan online application forms include personal particulars, employment history, and financial details. After completing the application form, the applicant can just click on the submit button to send in his personal loan application to the lender.