Personal loans are a type of installment credit, like a credit card. Unlike a credit card, though, a personal loan offers a one-time, set-payment of money to borrowers. Instead of making payments on an installment basis, which tends to be a lot more unpredictable, borrowers pay back only the money they borrowed, plus interest on that money over the life of the loan. The terms of personal loans are generally very specific and vary widely from one company to the next. Here’s a quick look at some of the common terms you might encounter when looking for a personal loan.
First, we will talk about personal loans with no cosigner. Many lenders require that you either have a cosigner (a registered investment account), or have a good credit score. If you do not have either of these things, then your credit score is likely to affect your ability to obtain unsecured credit. On the other hand, many lenders do offer personal loans without a cosigner. For these loans, the borrower must have a good credit score and cosigner.
Second, we will discuss the word “secured.” Some types of personal loans offer financing even if the borrowers’ creditworthiness is not perfect. Typically, the lending parties consider some or all of the following factors: payment history, financial history, credit rating, co-signers (friends, family members, or property owners), and collateral. If these factors are present in the financing, then the loan may be considered “secured.”
Third, we will discuss APR (annual percentage rate). APR is the interest rate over the life of the loan. Generally, personal loans with lower interest rate have longer repayment periods and thus are more expensive. However, if the borrower can pay the monthly installment in small installments, he can pay the higher interest rate in a longer period of time. Thus, it can be considered as an attractive option for paying off credit card debt.
Another type of secured loans is represented by mortgage loans. In this case, the lending party pledges the property (usually the borrower’s house) as security for the loan. As compared to unsecured personal loans, mortgage loans offer lower interest rates and longer repayment periods.
As can be seen from the above, it is important to carefully compare unsecured personal loans and secured loans. First, you need to compare the interest rates. Second, you need to compare the credit score requirements. Finally, you need to compare the cost of the loan. If you follow this advice, you can find the best deal and you can save yourself from paying high interest costs.