Your budget is stretched tight, and you aren’t sure where you’re going to get the money you need. You’ve heard about personal finance loans, but what are they? Can a personal finance loan be helpful to you and your family?
WHAT ARE PERSONAL FINANCE LOANS?
Personal finance loans are money that a lender – most often a banking institution or credit union – gives you and that you promise to pay back with interest. They may require you to put up collateral before they agree to give you the money. These types of loans are called secured loans; those which require no collateral are called unsecured loans.
WHAT IS COLLATERAL?
Different financial institutions have different definitions of what constitutes collateral. They may want you to use your house or other personal property as a guarantee that you’ll pay the money back. If you don’t, they can seize your property and sell it in order to recoup the loss they’ve incurred.
WHAT ARE THE DIFFERENCES BETWEEN SECURED AND UNSECURED LOANS?
Secured personal finance loans are loans which you have provided some type of collateral to receive. Since the bank can be fairly certain that you’ll pay them back, your interest will generally be lower and you may be able to borrow more money than someone who has no collateral.
An unsecured personal finance loan will usually have a higher interest rate, and your financial institution may have a lower limit on the amount you may borrow than other types of personal finance loans.
WHAT CAN PERSONAL FINANCE LOANS BE USED FOR?
When you apply for personal finance loans, some banks don’t even want to know why you need the money. Others, however, do – so be prepared to explain what you’re going to do. Whether you want the money for a long-anticipated vacation, to buy an engagement ring or simply to pay your bills, you may be able to get a good personal finance loan that will work for you and your budget.
HOW CAN I GET A PERSONAL FINANCE LOAN?
When you go to your financial institution to ask for a loan, you’ll need to prove to them that you’re in a position to eventually pay them back. If you have collateral, they’ll ask for all your documentation. Your credit scores will be checked and contrasted against the information you’ve provided. After going through this process, which may take up to a few weeks, you will be notified as to whether or not your personal finance loan application has been approved.
MY APPLICATION HAS BEEN DENIED; NOW WHAT?
If your loan application was denied, the financial institution you have been working with may be able to approve your personal finance loan under different terms. Check with your contact at the institution; if you can come up with a co-signer (someone who will promise to pay the money back if you don’t) or even some collateral you may have overlooked, they may be willing to work with you. If not, you’ll need to gather all your documentation and decide if a personal finance loan is right for you; if it is, try again with another institution.
I’VE BEEN APPROVED; NOW WHAT?
Once you receive the money from your personal finance loan, it is yours to spend however you choose. It’s wise to take some of the money and apply it directly to the payment on the loan if at all possible. Your monthly payments will need to be paid on time (early, if possible) or you risk losing your collateral and credit standing.
The basics of personal finance loans are easy to learn – just be sure to speak at length with your lender before committing to any contract.