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A personal loan is generally offered by banks, credit unions or other financial agencies for the personal financial need of a person. The financial need can be a medical expense, educational need, house renovation, marriage or other emergency requirements. It is availed to meet out the unexpected expenses. You must be aware of bad credit personal loan before availing personal loans. Personal loans are short-term loans, and generally, they range from thousands to few lakhs. A review of various types of personal loans and it features would be useful when you apply for a personal loan. You can use the loan amount for any expense, and the bank or credit agency does not restrict on how you spend the loan amount.
The article below discusses the basic things that one should be aware of before availing a personal loan.
Personal loans offer complete freedom and flexibility on spending the borrowed money. The bank does not impose any restrictions on how you spend the loan amount. You can make use of the personal loan amount for any expense for your family or personal financial needs. You can even use the money for planning a vacation with your family. Personal loans are completely different from housing loans or auto loans which are meant for a particular need.
Personal loans can be easily availed by anyone as you need not pledge any collateral or asset for the loan amount. Usually, the loan amount is quite less, and it is sanctioned based on your income. It is not possible for the lender to seize your property like a house, car, etc. when you fail to repay the personal loan amount. As personal loans are availed without any security, they are popular among middle-class people who rely on banks for their emergency expenses.
Fixed Interest Rates
The interest rates for personal loans are generally fixed, and they do not change until you repay the loan. The interest rates are mainly based on the credit rating of the individual. A variable interest rate is a burden as it may be difficult to plan out the budget each month.
Fixed Repayment Period
The individual who avails the loan can fix the repayment period of personal loans. It can be for one to five years based on the loan amount. You can lower your monthly repayment amount by increasing the repayment period. But increasing the repayment period can increase the rate of interest. Longer repayment period makes you connected with credit for a longer period which affects your credibility. This could affect other loans getting approved. So it is better to prefer shorter repayment periods with lower interest rates.
Affects Credit Score
You must be aware that when you do not make your monthly repayments for the availed personal loan, then your credit score can be greatly affected. Thus to improve your credit report see that you make your repayments promptly. This would not affect your credit score rather improve it.
Factors For Approval
Personal loans are unsecured loans, and thus they are offered based on specific factors. Employment and personal income of an individual are the primary factors that influence a bank for the approval of a personal loan.
The above are the things you must know about personal loans.