The most widely taken loan by people is personal loan. Cash crunch, investment, major purchases or expenditure, buying property, educational expenses and many other reasons contribute to a person taking a personal loan. It basically helps to close the budget gap for a particular activity.
Though it may seem like an easy way of getting money, one must know the intricacies of what these loans are about, how to avail them, what are the risks and how to repay them. Here is all you need to know about personal loans.
- What is a Personal Loan?
Personal loans are loans which are mostly given without a collateral. This happens because there is no specific cause which needs to be mentioned while signing the contract. Personal loans are given for a fixed period of time of repayment and aren’t revolving in nature. One repays it not as a lumpsum whole but in installments.
- How to get a Personal Loan?
Personal loans are given by both banks and financial companies. Almost all banks provide personal loans as it is used by most people. With the banks operating in all states availing loans is not a problem these days. As no collateral or mortgage is checked for the loan one needs to provide a credit score to avail it. The interest rate also depends on the credit score. Your credit score will basically determine your affordability to pay off the loan. Higher credit score leads to having better chances at availing loans.
One can also get loans online with web portals of banks and various finance companies providing this facility.
- What documentation one needs?
Documentation is a very important part of availing a loan. Without proper documents no bank or institution is going to lend you money. Security of their loan is based on your identity. The following documents are a must while availing a loan-
- Identification – passport, driver’s license, state ID or Social Security card.
- Verification of address – utility bills, recent mail or copy of lease.
- Proof of past income – W-2 forms, pay stubs, bank statements or tax returns.
- How to Choose?
Most favourably one should choose the personal loan with the lowest interest rate. Credit unions are of great help when choosing banks and companies from which personal loan can be taken.A very good credit score ranges from 725 to 759, whereas 760 to 850 is considered excellent. Always compare before taking loans.
- Can Loans be Availed Online?
Banks and private finance companies have strode ahead a long way with providing personal loans online. With mobile and internet banking getting and tracking loans have become easier. Even repayment methods have been digitized to a large extent.
- What are the risks involved?
While availing loans one must be careful of many things. Loan availability and loan repayment must be kept in mind while going to a bank. Prepayment costs must be checked which are costs one has to bear if they pay off the loan before the specified date. Checking accounts must be updated so that direct debiting for the loan is done accordingly
Taking a personal loan is very useful for immediate expenses and debt riddance but one should be careful especially online from scamsters and ponzi finance companies. So before taking personal loans try finding the lowest interest rates, then only borrow the needful and finally repay of debts on time.