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| Personal Loans - What You Need To know |
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A personal loan is a kind of obligation or debt that is generally made for
family or domestic purposes. It is not meant for business, or for long duration
mortgage use. The financer lends money to the borrower, and the borrower needs
to return the full amount to the lender, but not necessarily on a regular basis.
It is an interest-based debenture loan. It could be both a secured as well as an
unsecured loan. If it is a secured loan, the lender asks for collateral, whereas
in the case of an unsecured loan, there is no demand for any guarantors or added
assets.
However, though lenders may not require guarantors, a few banks
do ask for them, along with collateral in the form of added assets. So,
apparently, there is no standard form of rules. Variations are inevitable in
case of terms and conditions as well as the eligibility criteria, depending on
the fundamental principles of lenders. You need to scrutinize these in advance
to avoid future complications.
Purpose of a Personal Loan
This
loan can be used for any purpose, without any supervision over its ultimate use.
Usually, personal loans are used for high priced incidentals like tuition fees
related to school or college, furniture, television sets, washing machines,
cars, bikes and the like. Or, to fulfill urgent financial needs, be it a grand
function in the family or a vacation and so forth. Such loans enable you to take
care of a variety of expenses like travel, medical, marriage, honeymoon and so
on.
You must remember that the item that needs to be financed through a
personal loan should have a substantial life, at least as long as you clear the
debt. For example, an educational loan would certainly have a lifetime value, so
taking a hefty loan for it would be quite justified. But if you need to take a
car loan, and take around four years to repay it, then the car should at least
remain functional for that period of time.
Types Of Personal
Loan
Basically, there are three types of personal loans, namely,
installment loans, balloon loans and single payment loans. They are as
follows:
- Installment Loan: These are loans in which you need to return
the amount of money borrowed, along with the interest, in monthly installments
over a pre- assigned time-period. This is the most popular kind of loan and
people generally opt for this kind of loan. Auto and car loans come under the
category of such loans.
- Balloon Loan: These loans require you to pay
installments over a set period of time along with a comparatively greater amount
of money at the term-end. You must ensure that your income level does not
decrease during the loan term so that you can afford to meet the ‘balloon�
amount in the end.
- Single payment Loan: This involves payment of the
entire amount of money taken as a loan, along with the interest rates, at a
certain date in the future.
Personal loans allow you to overcome an
acute financial crisis, and avert the necessity of mortgaging your home, jewelry
or other such prized possessions in order to meet your immediate fund
requirements. They help you to keep your family and your assets secure while
overcoming unavoidable circumstances, without suffering undue loss.
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