Essential information on personal loans

There has always been a time in everyone’s life where they have faced a cash crunch. They may run out of funds they had kept for expenses, and may not want to dive into their savings.

In such cases, personal loans are an ideal solution for the individual that needs to take care of the expenses at hand. These loans, unlike most of the other type of loans, do not require the borrower to have a co-applicant. 

These loans include a hassle-free process, which is essential for borrowers, since individuals taking these loans are usually need the funds on an immediate basis. To know more about personal loans, here are the most important questions about them answered:

What is a personal loan used for?

The best part about personal loans is that they are not restricted in any way. Unlike specific type of loans, like say a home loan or an education loan, which are meant specifically for funding expenses related to your home and academics respectively, a personal loan amount can be spent as per the individual’s requirements.

This amount could be spent for multiple reasons, be it for funding a wedding, renovating a house, a medical emergency, or even going for a trip. What is great about these loans is that even when you have the freedom to use the loan amount for whatever personal reason, financial institutions do not require the borrower to provide them with any kind of collateral for the personal loan they have taken.

How does a personal loan work?

Personal loan work the same way that any other type of loans work, where the applicant has to apply to a financial institutions for a personal loan. Once the financial institution has reviewed the application, they will sanction the loan.

The loan amount that the applicant is eligible for depends on their credit score. Even the interest rate on the loan depends on the credit score of the applicant. This is the reason why an individual should maintain a good credit history.

What are the types of personal loans?

There are 2 different types of these loans. They are:

Unsecured personal loans

Most of the applicants look for loan providers that give such type of loans. This is because an unsecured personal loan involves the applicants not having to provide any kind of collateral to the financial institutions.

This is a greater risk for the financial institutions, since they are giving loans to applicants without any security. This is the reason that financial institutions charge a higher interest rate on this type of loans.

Secured personal loans

A secured personal loan involves the applicants having to provide collateral as security to the financial institutions in order to get the loan. Most of the applicants look to avoid this type since they do not want to provide collateral.

But there are also benefits for borrowers who accept to provide collateral, since the financial institutions agree to give a lower interest rate on the loan they provide since they are getting security.

Hope this answer has helped you, all the best!