An Overview of Personal Loans

An overview of personal loans has to take in to account – among other things – the different types of personal loans available, the ways in which the charges are structured and the various terms and conditions associated with the repayment of the loan. It is vital that anyone considering taking out a personal loan be aware of these matters in full in order that they decide both upon the right type of loan and the right terms of the loan for their individual purpose.

There are essentially two principal categories in to which a personal loan can fall. There are secured personal loans and there are unsecured personal loans. The difference here is that secured loans are secured against a property, whereas unsecured loans are not. This means that in the event of the borrower defaulting to any serious extent on the secured loan monthly repayments, the lender would have subsequent claim against their property. Secured loans tend to be for larger amounts of money, perhaps even to conduct improvements or repairs to the property against which they are secured.

The charges associated with personal loans will vary dependant upon the lender and the type of loan which is arranged. The obvious charge in this respect is the interest which will be charged upon the loan during the term of the agreement. It is not cast in stone but generally the interest rate will be variable on secured loans over a longer term, dependant upon prevailing market conditions, while the interest rate on unsecured loans will be fixed for the term of the loan. The rate applied is likely to be less on secured loans than on unsecured as the risk to the lender is significantly less.

The one-off charges which may apply to personal loans fall in to three categories. It may be the case – particularly with secured loans – that the lender will charge an initial arrangement fee for granting the loan. This will relate to the expenses incurred for obtaining the security. It could also be the case that any monthly repayment which is late in being made to the loan will incur a penalty fee. The final possible charge – mostly relating to unsecured loans – would be an early repayment fee, usually equivalent to a fixed number of months’ chargeable interest.

Personal loans can be a very good idea and even a blessing to many people who are wanting to make a large purchase or unexpectedly facing a large financial outlay. Understanding the different types of loan, however, and the charges and conditions associated with same, is imperative in order to ensure that both cost and inconvenience are kept to an absolute minimum.