In real life even when everything going as planned there always comes a time when people require a large amount of money. They cannot come up with that amount fast so at the end taking a loan becomes the helpful answer. In such cases taking a personal loan is preferred. But what are personal loans?
Personal loans are a specific amount of money people take from organizations or individuals for a certain time period. The money has to be returned after a specific time with addition of a certain interest or fee. The person who borrows the money is borrowers while those who give the money are lenders.
Personal loan types
- Personal loan are of two types
- Secured loan
- Unsecured loan
- Secured loan
This type of loan is required when you are in no hurry to get the money or when you require a large amount of loan. This type of loan is taken from financial organizations like banks.
To get secured loan you have to put an asset as collateral. But the value of that asset should be equal to or greater than the amount of money you want to loan. It is a given that putting an asset as collateral has its risks. If you are unable to pay back the loan, in addition to the interest rate, that asset becomes the property of the bank.
Now what can be used as an asset in getting a secure loan?
- Property can be used by putting it up for mortgage.
- Your recent home can be used as an asset.
- Gold and diamond jewelry can be used.
Even with the risk it is easy to get secure loans and you can get higher loans The interest rates are low as compared to unsecured loans. Also you get longer loan payment duration.
Now these types of loans are taken when you are in a hurry. If you don’t have time to deal with paper work of putting assets as collateral than this loan is for you. Unsecured loans are lended by banks and private lenders.
In these types of loans it isn’t required to put up an asset as collateral. But the loans are given on the base of borrower’s credit history and income. Lenders are doubtful in giving loans to people with bad credit history as there is chance that they won’t be able to pay it back.
Unsecured loan are fast but they have a higher interest rate to them. As the lenders give the loan without any hard strings attached, they increase the interest rate and payment duration of the loan is not as flexible as secured loans.
What happens of you can’t pay your loans back
In such a case that the borrower is not able to pay their loan back the lender puts a bad credit mark on the borrower’s credit history. And in the future it will be hard to get any type of loans or mortgages for that person.