Today, many of the households have begun feeling the financial crunch persisting in the economy. This, as a result, has made them weigh their choices with personal loans. Though the rumor is that the financial institutions and banks have imposed stringent laws on personal lending, this isn’t the actual case. Getting a personal loan is similar to what it was years ago. In fact, now, you will come across various types of personal loans to meet your needs respectively.
A personal loan is a type of unsecured loan given to the customers so that they can fulfill their requirements. Unlike house loan and auto loan, a personal loan can be used for any purpose you see fit. For instance, you can buy home appliances or pay medical bills or visit your dream destination using the money. The personal loan is offered by both banks and non-banking organizations after verifying your ability to pay back the lender. Mainly your source of income and credit history is checked. A certain amount of processing fee is charged and the loan amount is credited to your account. Monthly installment is calculated based on the tenure and amount of the loan so that you can pay back comfortably. Before you apply for a personal loan, let’s take a look at the pros and cons.
Offering you relief from the financial stress is what all of these personal loans aim to do.
Types of Personal Loans
Here are some popular types of personal loans that are discussed in details:
These are the easiest of all to obtain, if you are dealing with bad credit score. The companies offering credit cards have their doors open to people, irrespective of their credit score, so as to legal help them in building their FICO credit score. The application of these cards is easy, but they come with high rates of interest. This might seem to be a discouraging fact, but if you want to rebuild your credit score, there is no other motivation than high rates of interest. This will guide you to only incur expenses that you are capable of paying back on time.
You should not use a credit card for solely managing your way of living completely. They need to be used as an emergency tool, i.e., when you need extra cash, but you don’t have the same. Not being able to clear your credit card bills can give rise to a great trouble.
Car loans are another type of personal loan, whereby it is your new car, i.e., the one which you buy using the loan, that is kept as the collateral security for determining the amount the bank is lending you. The term collateral means, if you fail to make the payment to the bank, it will repossess your vehicle, so as to get their money back. The car will be auctioned. The car loans can be achieved by the car dealer or by you reaching the bank personally. These types of personal loans come with hidden charges that you will not even realize when signing the loan papers.
Home Equity Loans
It is one of the most common personal loans and also offers great tax advantages. Depending upon your IT (Income Tax) Bracket, you will be able to deduct the interest amount of the home equity loan you are availing. This is definitely an advantage to acknowledge. In this loan type, it is your home that will be used as the collateral security.
As you see, there are personal loans for specific purposes and with your financial adviser’s assistance; you can decide which lending option to go with.