Personal loans are loans that are obtained by an individual and not by a company, partnership, or any other type of entity. As such, personal loans can have massive repercussions if you are not careful. It is important to know that a personal loan is not restricted to a loan from the bank. Credit cards are loans and as such, should you default on a credit card payment, you could face some serious problems, both personally and financially.
If a corporation or some other legal entity obtains a loan (assuming the loan is not personally guaranteed by any person and there is not collateral pledged by any specific person), that corporation or legal entity becomes responsible for the loan. Therefore, absent any misconduct by shareholders or officers, the bank or lending institution that made the loan can go after only that corporation or legal entity. As such, the individual shareholders and officers are “off the hook,” so to speak, in regard to the loan obligation that is owed.
The same situation is not true with a personal loan. If you take out a loan and you do not make payments on the loan or otherwise default on the loan, you alone (absent any co-signers) are responsible for paying back the loan. As such, if you fail to do so, the bank or lending institution that made the loan can come after you and can sue you to recover the amount of the loan that is still owed. This is also true with credit cards.
As stated above, credit cards are loans and fall into the category of personal obligations. It is surprising the amount people that do not believe credit cards to be loans. Unfortunately, this is a costly misconception. When you make a purchase, you borrow the money from the credit card company to make the purchase. You then pay back that balance. As you pay back the balance, you are charged an interest rate. I can think of no clearer example of a personal loan.
If you do not pay your credit card debt, you can be sued by the credit card company for the amount that you owe and possibly the costs that are incurred by the credit card company in obtaining the judgment. As such, it is critical that you pay your credit card obligations so that your assets are not attacked due to your failure to pay back these personal loans.
Loans can be an effective way to make money. However, if you are not careful when obtaining a personal loan, you may find that defaulting on such a loan can be a very stressful, time consuming, and expensive experience. As such, make sure that you have the ability to pay back the loan (not in one lump sum but over time) when taking the same.