Complete Guide to Personal Loans
Personal loans are loans that can be either secured or unsecured. (Usually they are unsecured.) Personal loans are for unspecified purposes, unlike mortgages or car loans, which are made for specific purposes. The proceeds from a loan, like a mortgage or car loan, are usually paid directly to the seller of the property. The proceeds from a personal loan are given to the borrower and he may use the funds in any way that he wishes. Sometimes a personal loan that is not secured is called a signature loan.
A personal loan is different from a credit card, store card, or gas card balance in that there is a repayment schedule. Regular (usually monthly) payments are required, and the loan is for a fixed period of time. Credit cards, etc. have a minimum payment requirement, but a personal loan has a specific periodic monthly payment.
Ordinarily, personal loans are made by banks to people who have an excellent credit score and an unblemished (or nearly unblemished) credit history. The interest rate on a personal loan is usually slightly higher than the interest rate on a secured loan.
However, sometimes people who have bad credit or no credit can still get an unsecured personal loan. Lenders view these potential borrowers as people who are trying to reestablish a good credit rating and, although they do not have personal property to use as collateral, they do have a job, and they do have the financial ability to repay the debt.
The interest rate on an unsecured personal loan will be high. The borrower will have to prove that they have a job and they can be reasonably expected to make the set monthly payments. The advantage of an unsecured personal loan is that it gives the borrower an opportunity to repair their damaged credit rating.