Personal loans are one of the most popular ways to get the extra funds you need for any purpose. The low personal loan interest rate and unsecured nature make them an appealing choice. But there are things you must be aware of before you proceed further. Here are few of them:
1) Personal Loans doesn’t require any security
Put simply, personal loans do not require any collateral that you must mortgage. On the surface, this looks like a great deal. After all, nobody wants to lose their property in the event of failed repayment. However, this is also the reason why personal loans are hard to get. From the point of view of the lender, you are just a stranger who is asking them for money but giving nothing in return. A lot of factors like the duration of residence at your current address, your career stability and your credit score comes into the picture. If you are a freelancer/self-employed person who moves around a lot, it would be really difficult for you to secure a personal loan.
2) Personal loan amount can be fixed and variable
It is not as confusing as it sounds. In simple words, the amount you can borrow can be fixed or variable depending upon the bank.
Almost every lender decides the amount you can borrow judging on the factors we discussed above. The better you score, the more money you can get. However, some banks do have an upper cap on personal loans. It means that you cannot borrow above a fixed amount, no matter how good your credit score is. Check out personal loans online to see what amount you are eligible for.
3) Personal loans have fixed interest rates
Personal loan interest rates are fixed. The rate at which you took the personal loan will remain the same throughout the tenure of the loan repayment. Since variable interest rate almost always go up and lead to higher interest, a fixed interest rate is the best bargain you can get.
However, even though everyone wants low interest personal loans, the interest rates are subject to the lender and at their discretion. It means that the lender decides what interest rate they would charge you, usually depending upon your credit score. If you have an excellent credit score, you would usually get the lower interest rates along with longer repayment tenure.
4) Personal loans and credit score affect each other
Like we mentioned so many times now, your credit score is the single most important thing that decides your personal loan. A good credit score will ensure high loan amount, low interest rates and longer repayment period.
At the same time, your personal loan also affects your credit score. Your periodic loan repayment will be fed into the system and affect your existing credit score. This means that if you delay or fail to repay even a single installment, it will be instantly reflected on your credit score and make getting future loans more difficult. Use a personal loan calculator to keep track of your credit score.
5) Personal loans can also be scams
Shiny things can often be deceiving. The lucrative nature of personal loans makes them an appealing choice of loans, making people try everything to get them. This has opened doors for many financial fraudsters who promise to sanction you loan and then scam you.
You must always remember that credit score is the deciding factor in personal loans. Anyone who guarantees to give you a loan with bad or no credit score is most likely deceiving you. They do so by asking for money (which they call loan processing fee) and then disappearing. It is preferable to seek best personal loans from banks or lenders that have a long-standing reputation.
Keeping these points in mind while applying for personal loans will make things much easier and safer for you in the future.