While it would be nice to always have enough money to pay for anything that is needed, it is often necessary to borrow money. Banks provide loans for a wide variety of uses. These loans are most common when they can be attached to specific collateral that is easily recaptured and sold should the loan be defaulted on. However, occasionally it is necessary to borrow for another purpose. In this instance, a personal loan may be the way to go.
Function
Standard bank personal loans allow for someone to borrow funds for a purpose other than the purchase of certain items which the banks have specific loans for, such as real estate and vehicles.
Features
Typically, personal loans are one of the few loans available to borrowers without collateral. However, borrowers may often be able to get a larger loan or lower rate with sufficient collateral for the loan. Regardless, personal loans are made primarily based upon the borrower's credit history and credit score, and generally come with a higher interest rate.
Considerations
Since personal loans are often charged a higher interest rate than other types of loans, it may be in the borrower's interest to consider other loan types first. For example, a home equity loan can be used for multiple purposes.
Warning
Because personal loans have higher interest rates and either no collateral or unconventional collateral, they can quickly become a burden on the borrower either by lower credit scores, or difficult to make payments. Caution should be used prior to obtaining a personal loan. If the amount is lower than $10,000, in many cases a credit card may provide a better lending vehicle with a lower interest rate.
Benefits
Personal loans allow for customers to borrow from a bank without having to fit their need into the standard loan product mold. They therefore provide the freedom necessary for the borrower to accomplish their goals with the borrowed funds.
Tags: higher interest, interest rate, personal loans, higher interest rate, loans allow, necessary borrow
