Personal loans are among the many forms of loans that one can access from the banks. Other types of loans include mortgages, credit cards and bank overdrafts; these are categorized as unsecured loans. The other category of loans is the secured loans such as caveat loans. Secured loans are those that will be tied to collateral. In the event that a debtor fails to settle the loan, the collateral will be used to offset the debt. A common characteristic of these loans are their flexibility. This means that it can be acquired for any reason and can be tailor made to fit the borrower. If you are contemplating taking these loans, you must be ready to go through a rigorous process due to the high risks involved.
Why are they regarded as unsecured?
These loans are regarded as unsecured because they are granted based on the strength of an individual’s credit history. It therefore involves checking previous loan repayment records in order to determine a person’s payment capability. Another factor that a credit institution may want to consider before granting credit is the current income of an individual and a possibility of an increase in future. Someone with a considerable size of assets will find it easier to have a loan approved than one who does not have assets. An exceptional character and a good reputation in the society are advantageous even when you don’t have collateral. It’s vital to note that in case of default, creditors do not have the right to hold property; the only option available to them is reporting you to the credit bureaus or filing a law suit in courts.
Loans at fixed amounts
Different financial institutions prefer having a set maximum and minimum amount that one can apply for. Different customers usually qualify for different amounts of loans depending on their credit rating. A good rating means one can access a higher amount of loan than others with poor ratings. It is easier getting cash loans from institutions that have lent you credit before because of the relationship established when acquiring the first loan.
Lower interest goes with a good rating
Interest rates are always fixed when getting a loan for the very first time. But depending on the repayment history, one can qualify for a lower or negotiable interest when applying for a loan the second time with the same institution. A good first impression with lenders will not only give you a chance to negotiate for lower interest but also give you access to a higher amount of loan.
Decide wisely on the payment period
When you are applying for a loan, it is very important to decide on a loan repayment period that will best suit your financial needs. Loans periods usually stated in months can be as short as twelve months or as long as sixty months. This is quite advantageous to customers as this flexibility ensures a strain-free payment process. A longer payment period will mean smaller installments but higher interest and vice versa. This should be borne in mind as it might not be easy adjusting the terms except when one is making an early settlement of the loan.