What is a personal loan?

What is a Personal Loan?

A Personal Loan, sometimes referred to as a Short-Term Loan, is a type of loan specifically designed for an individual who needs money for any reason. No specificity is required on a personal loan, it can be used to buy a car, property, home improvement and renovation, vacation, or even to repay a debt. Many times a lender will not require you to explain what the money is being used for, or why you are applying at all.

Personal Loans vs. Lines of Credit

A Personal Loan is often, but not to be confused with a line of credit. Generally a personal loan is one sum of money that can be used for anything, given to you by the lender at a certain interest rate, usually determined by the secured or unsecured nature of the loan, as well as the amount and financial situation of the borrower.  A line of credit differs from a loan in that you have access to any amount of the funds issued you, whenever you need it.

Personal Loans – Secured or Unsecured

Personal Loans are generally broken into two categories, Secured Loans, and Unsecured Loans:

Secured Loans usually include some sort of collateral or security asset that can be re-claimed by the lender in the case of non-payment of the loan.  Borrowers applying for secured loans will generally put down some sort of collateral such as a car, property, precious metals or assets, or other types of collateral.  This makes the loan more secure for the lender, and generally means a decrease in interest rates in comparison to an unsecured loan. 

Unsecured Loans do not involve any sort of collateral or securities, and only require the borrower to fill in an application and sign that they will repay the loan amount, plus any interest accrued, in the approved time frame. Unsecured Loans are given based upon certain criteria by the lender in regard to the borrower, including, but not limited to:

Financial Situation

Living Situation

Past and Current Credit History

Pre-Existing History with the Lender

Unsecured Loans will be granted or denied based on the lender's approximation of whether the borrower is in a position to repay the loan over the given time frame, based upon the information in the application.  In the event that the borrower default's on an unsecured loan, there is no property or asset to be seized by the lender, they are forced to resort to collection calls or even legal action against the borrower in order to recoup the value of the loan.

Applying for A Personal Loan

Personal Loans are a great way to get money fast for any application you desire.  The applications are generally quick and easy to fill out, you can even apply for personal loans online.  Even if you have bad credit, or no credit, you can still be approved for a personal loan, especially if the loan is through a money lender and not a banking institution.  Most commonly personal loans are used for debt consolidation or to repay a debt, and are a good way to lessen the load of many small debts by consolidating them into one.

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