A personal loan is a money you borrow for any purpose, including debt consolidation, an unexpected medical bill, a new appliance, a vacation, etc. It allows flexible use, short- to moderate-term repayment options and relatively quick funding.
A personal loan has 2 main features:
- You should return the entire loan amount to the lender within a pre-agreed time frame;
- The lender charges a fee for using the loan, its amount is also agreed in advance.
Personal loans are usually classified according to several criteria.
By the lending purpose:
- Purpose loan – loans issued to finance the specific needs of the recipient;
- Non-purpose loan – here the recipient is free to spend.
By the method of ensuring the return:
- Secured – such loans have a mandatory condition for the transfer of valuable property or rights to it to the lender;
- Unsecured – in this case, the borrower’s compliance with the loan agreement is not ensured by the property;
- Loans secured by surety – this means the appearance in a credit transaction of third parties who take responsibility for the borrower’s compliance with payment obligations;
- Loans without guarantors – in this case, the borrower bears all obligations independently.
Collateral, surety and other additional guarantees make the loan more reliable in the eyes of the lender. In this regard, there is one general pattern: The more secure the loan is, the lower interest rate.
In addition to the rules and restrictions already listed, lending is subject to additional obligations for the borrower. This may be a duty to engage in a specific type of activity, the direction of borrowed funds for certain operations, other restrictions.
The method of using borrowed funds is especially important for lending. On this basis, in addition to personal loans, you can apply for:
- business loan – borrowing for the development of entrepreneurial activity;
- mortage / home loan – loans for the construction or purchase of buildings and structures. Most often, this is how the acquisition of housing is credited;
- car loan – for the purchase of a car.
- student loan- funds received are directed to educational institutions as tuition fees;
- loan for treatment and health improvement – a way to pay for services in these areas.
The loan offer is determined by the needs of the borrower, the possibilities and expected benefits of credit institutions, and is regulated by law.
The parties to the credit transaction are the lender and the borrower. The owner of the funds (lender) determines the terms of lending, and the borrower accepts or refuses them.
The topic of lending is not limited to those listed above. Many specific aspects, such as the form of the loan agreement, the fulfillment of obligations and guarantees, government intervention, etc., become the object of separate consideration.
Pros and cons of personal loans
Personal loans in the USA are provided by various organizations – banks, microfinance organizations, microcredit companies and consumer credit unions. The advantages of obtaining such products are as follows:
- relatively fast processing – it takes about 5-20 minutes to get a cash loan. The procedure carried out online is faster. The deal is concluded via the Internet, and access to the service is open around the clock. When visiting a bank or microfinance organization in person, the registration of the service is delayed. Time is spent waiting in queues, filling out a questionnaire, processing data, signing a contract;
- high percentage of approval – many companies have eliminated their requirements for borrowers. They lend to individuals with open loans, damaged reputation. Thanks to this, the probability of obtaining personal loans is close to 95%;
- minimum paperwork – if the loan is small, then only an ID and SNN are required to get it. For a large loan, more stringent requirements are established. In this case, proof of income and official employment is required, and the personal loan is provided against the security of real estate or a car.
The disadvantages of personal loans include:
- significant overpayments – they are hidden in rates, commissions, insurance;
- limits – the maximum amount of personal loans is about $5000, but it can be higher;
- short lending periods.