Personal loans are unsecured or secured loans which may be used for a variety of purposes such as debt consolidation, home improvement or tuition payment. Banks and credit unions are the institutions that typically make personal loans. However, some payday loan companies advertise personal loans as well. Requirements for getting a personal loan will differ based on the type of loan applied for and the type of institution granting a loan.
When an individual plans on getting a personal loan, he must fill out an application with a loan granting institution. Specific information and accompanying documents must be presented with the application before the lender will make a decision about the loan. Many companies allow applications to be completed over the phone or online.
Depending on the institution, some applicants may be required to decide at the time of their application if they prefer to apply for a secured or an unsecured loan. In other cases, the applicant’s credit score will dictate which loan he is eligible for. Most applicants who have a bad credit history will not qualify for an unsecured loan.
Getting a personal loan which is secured requires providing collateral to the lending institution. Collateral is a pledged asset, such as a home or car, which will be confiscated by the lender if the loan is not paid. Secured loans are also a good choice for people with good credit because they reduce the risk of the transaction for the lender, which leads to lower interest rates and the ability to borrow larger sums of money.
Getting a personal loan also requires making plans for repayment. Once an applicant has been approved for getting a personal loan, he will have to sign a promissory note, or promise to pay. Time frames for repaying the personal loan can range anywhere from six months to 60 months. Longer repayment terms usually mean higher interest rates and most definitely increase the total interest paid over the life of a loan. After the promissory note is signed and returned to the lender, the loan is usually granted in the form of a check and mailed to the applicant.
Payday loan companies that advertise personal loans operate differently than banks and credit unions. They offer secured loans that use the applicant’s expected paycheck as collateral and they don’t check the applicant’s credit history. Applicants only need to prove their identity and employment, but the interest rates are extremely high.