What is a Personal Finance Loan

Personal finance loans can be taken for a myriad of reasons, generally to assist to pay for, or to purchase something you cannot afford to pay for in a lump sum. They can be obtained as consolidation loans to pay down other debts or as an investment in the future such as to finance further education. Most generally loans for a high amount are given for a specific purpose, so it wouldn’t be wise to obtain a student loan and blow it on a vacation rather than its intended use as a means to pay tuition costs. Nevertheless many choose to finance vacations through loans rather than savings.

Not every finance institution requires an explanation of how you intend to use the loan, and unsecured personal loans are often approved without any regard for your spending intentions. Personal loans which are granted by banks are subject to credit checks and paperwork, and may take weeks to be granted. Banks are much happier to advance loans to those who are settled with a mortgage and excellent credit score, and will be more likely to offer these customers preferential interest rates which will save the borrower in interest repayments.

The two standard types of loan are secured and unsecured. The former require collateral held against the loan, most usually your property. Whilst secured loans are usually cheaper to service than unsecured loans you are putting an asset at risk by signing a secured loan. Unsecured loans require no collateral but tend to have higher interest rates.

When you apply for a personal loan oftentimes there are fees and potential penalties attached which the borrower needs to be aware of. A lower percentage interest rate can soon be wiped out if you are paying application fees or processing fees. Loans also carry penalty fees for late payments which can also cause the interest rate to rise as the repayment arrangement is broken.

The fees to be most aware of with personal loans are any early redemption fees. Many loans carry a charge if you decide to repay them early when circumstances allow, so pay particular attention to any such penalties, as they could well mean you end up spending more than necessary.

Due to the high rate of credit card borrowing costs many people choose to take out a consolidation loan to bring all their different credit card debts under one financial payment. They can be an excellent tool to consolidate all your debts into one streamlined monthly payment. If consolidation loans are obtained they should be used to pay off the credit card debts.

Those who seek personal loans have a vast choice of lenders open to them, depending on their credit standing. For those with bad credit unsecured no credit check loans with high fees, such as payday loans, are often the only choice available. Whichever lender you use check to ensure they are regulated, and always shop round for the best possible deal for your personal finance loan.