What You Should Know about a Personal Loan
Given the increase in the number of personal loans being sought for, it is important that you have an idea of the basics in case you want to get one. First, personal loans are short term loans ranging from five months to even ten years. A personal loan could be from as low as $500 and is used for financing personal needs like paying bills and attending to emergencies. Personal loans are a different from other loans like home equity loans both in the amount provided and repayment structure.
Mostly, personal loans are unsecured meaning there is no collateral attached to the loan to guard against the risk of someone not repaying it. This has the effect of making them attract higher interest rates though they are still lower than the rates on credit cards. Usually personal loans have a fixed interest rate meaning the rate does not change even with changes in the economy. However, you could still find secured loans and personal loans with variable rates. There are no tax benefits with personal loans meaning the interest is not deductible. This, however, does not take out the convenience and the usefulness of a personal loan.
When choosing between fixed and variable loans it all comes down to the economic times and your budget. If you are sure that the times would change in future and not taking a long term loan then you might want to take advantage of these kinds of loans. The fixed rate personal loans are more preferred as they do not change with current market rates. This makes it possible to budget your income knowing what you have to give out each month. The other choice you have to make is whether to go for a secured personal loan or an unsecured one. A secured loan allows you to enjoy a cheaper rate but risk losing the collateral property should you fail to repay.
Lastly, you also need to make a decision about whether you will need payment protection insurance (PPI) or not. The idea of PPI is to ensure your loan still gets repaid should you lose your source of income or in case of redundancy. However, it is recommended that you get it from an independent third party. It is also important to know that your credit rating will affect your personal loan qualification and the cost of the charge. With this knowledge you will be set to start your search for a personal loan.