As you probably know, there are nearly as many loan programs out there as there are people to apply for them; and odds are good that you are now or will soon be in the market for one of them. Your decision on which type of loan is right for you will generally be based on several factors: which type helps you to accomplish your financial goals, which type is least costly on your end, and which type you will be able to qualify for. The type of loan I am going to address here is the personal loan.
Secured Vs. Unsecured
While personal loans are not necessarily popular with banks (because of the relatively small size of the loans, they do not tend to make the bank a lot of money), they are definitely popular with customers. The American Bankers Association (or ABA) estimates that personal loans make up nearly a quarter of non-mortgage installment loans. That is a pretty large chunk!
Secured loans require some form of collateral, such as a house or a car, to protect the lender’s investment. Unsecured loans are exactly as they sound – unsecured. One reason for the popularity of the unsecured personal loan is that it is a lot less risky to the consumer; your personal property will not be on the line if you are unable to repay it. Bear in mind, however, that you will be paying a higher interest rate than you would with a secured loan.
A Versatile Funding Source
There are many reasons that consumers find these loans so appealing – they have fewer restrictions than a lot of other loan types, so you can use them for anything you would like (as long as it is legal, of course!).
This makes personal loans ideal for events such as weddings, vacations, dental work, etc. A personal loan may also be a good option if you are looking to round out student loans that do not quite cover all of your expenses. Many consumers find them to be a good alternative to credit cards, as well. With credit cards, you may be tempted to pay only the minimums, and can get caught in a downward spiral of debt. With a personal loan, the terms are clear, and you know that once it is paid off, you are done.
Do Your Homework
In addition to being responsible for the repayment of your loan, you need to be responsible to yourself by making sure that you are going through a reputable lender. It can seem like a lot of work to carefully research potential lenders, but a little bit of work now can save you a lot of trouble in the long run.
Many loan officers receive commission based on the loan amount, so be a disciplined borrower, and only take what you can afford to pay back. Carefully read all of the fine print to make sure that you fully understand the specifics, borrow only what you need, and remember – if you take care to borrow wisely and repay on time – you will find that personal loans can be a valuable tool to build a strong credit rating: the cornerstone of a strong financial future.