Personal Loans

Personal loans – choosing the one that is best for you

When it comes to a loan, there is really nothing more personal than a personal loan. The primary USP of this loan is the fact that it can be used for anything, except in the case where there is a specific loan available, like a housing or car loan. Using a personal loan here would be rather foolish as the rates for housing and car loan will be much less. A personal loan should be used with care. If used the right way, it can prove to be a great asset in terms of liquidity. Yet it can just as easily be turned into a liability landing the borrower into further financial crises. So choose your lender and the type of personal loan that you opt for very carefully.

Unsecured and secured personal loans

There are basically 2 types of personal loans – secured and unsecured. Secured loans are the kinds that require you to offer some kind of collateral that is of a value higher than or equal to the loan amount that you intend to borrow. The required collateral kind and value will depend on the lender. Unsecured loans are the kinds that do not require any kind of collateral. These are easier to come by, as most people do not have collateral that they can offer. Even though unsecured loans seem easy to get, people still prefer the secured ones as they carry a much lower interest rate.

Lending rates of personal loans

This is once again an aspect that depends on the financial institution that you are taking the personal loan from. Like other loans, personal loans too have 2 options when it comes to their rates of interest. They have floating and fixed rates. A fixed rate loans means that the interest rate that you are charged is the same right through your loan period. This interest rate is fixed at the time of borrowing the amount. With floating personal loans, the interest rate fluctuates depending on the current market rate. Therefore, you will have variable rates all through your loan period.

Repaying personal loans in instalments

Payment in regular monthly instalments is the most popular repayment method when it comes to personal loans. With this method, the interest amount along with a principal amount is repaid every month. The interest amount on personal loans that follow this repayment plan is calculated on a reducing balance bases, in other words on the outstanding principle amount.

Other instalment options to repay personal loans

While the method mentioned above is the most popular way of repaying personal loans, there are other repayment options that are available as well. The first of these is the balloon instalment method. With this method, the borrower only pays back the interest amount for the entire duration of the loan. The principle amount is paid back in the end with the last instalment. The second method is the single instalment method where the entire principle and interest of the personal loans are paid back at the end of the term in one single instalment.