| A personal loan is a general term for a loan obtained
from a bank or other financial institution for the means of
personal use. Debt consolidation, vacation, college tuition,
the purchase of an automobile and home repairs are just a
few examples of what people commonly use personal loans for.
The terms of a loan are generally at a fixed interest rate
and the length of the loan is determined by the amount borrowed.
There are two types of personal loans, secured and unsecured.
With a secured personal loan, personal property such as your
home is used to secure the loan. With an unsecured loan, credit
history and income are used by the lender to gage the amount
and terms of the loan. Each type of personal loan is described
in more detail below.
With an unsecured loan, the lender relies solely on the
borrower’s credit history and good faith to repay the
loan. Therefore, lenders tend to limit the amount of an unsecured
loan and the interest rates are usually higher than a secured
loan. Unsecured personal loans are a good option for non-homeowners
but also require a good credit score since there is no property
securing the loan.
A secured personal loan is based on securing the loan with
personal property or assets such as your home, a savings account,
stocks, bonds, certificates of deposit, etc. Lenders tend
to be more flexible when granting a secured loan by giving
lower interest rates and longer terms to repay the loan. You
can usually borrow a larger amount with a secured loan than
an unsecured loan. If your home is used to secure the personal
loan, the loan may also be referred to as a home equity loan
or a second mortgage.
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