Personal loans are short-term debt sought by individuals (as opposed to businesses). They are used to consolidate debts, pay for tuition, buy car, go on vacation, defray wedding expenses, or pay for other emergency situations. In other words, these loans can be used for virtually any purpose. Personal loans can be easily acquired, even for persons with poor credit
There are two types of personal loans: the secured or collateralized loan and the unsecured loan.
The collateralized loan entails the backing of the borrower’s asset or assets, such as car, house, or jewellery. The collateral is the lender’s security, so that if the borrower cannot repay the loan, the asset will become the property of the lender. Providing collateral for a loan gives two advantages. The first is, it increases the amount of loan that the borrower can take. Personal loans granted by banks and other financial agents are usually very small, sometimes amounting to just $300.00. However, secured loans could reach as much as $2,000.00 depending on the value of asset or assets used to secure it. This is the main reason many borrowers opt for secured loans. The second benefit of collateralizing loans is they lower the interest rates. The lower the interest rates, the lower the amortization. Therefore it is easier and less costly to repay the debt.
An unsecured loan is given by lenders without any kind of collateral. It is based solely on the borrower’s good name or credit rating. So there are no risks to the borrower’s assets, and they remain intact even if the borrower is unable to repay the loan on time. However, defaulting on personal loans will do great damage to the borrower’s credit score, so that it will be very difficult and expensive to get another one when an emergency calls for it. To avoid defaulting on personal loans, use them wisely in the first place. Take personal loan amounts that you are sure you can repay, and that is enough to cover your requirements.
Military Debt Consolidation Advice is an online resource for debt and financial planning, for all readers but with a focus on current and ex military personnel.
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