The personal loan world can be confusing at times. Once you figure out the different between secured and unsecured personal loans, there are still plenty of other issues to deal with. A personal loan is different than, let’s say, a car loan or a home loan. As such, it’s a unique animal with its own process.
You need to understand, first of all, that an unsecured personal loan involves no collateral. As such, the interest rate is going to be higher. Why is this? Because the lender is at greater risk. If you stop making payments, the lender has no recourse (other than the collections process).
Most of the time, a personal loan will require a credit check. The lender needs to be reasonably sure that you can and will pay back the personal loan. Personal loans that don’t require a credit check tend to be more along the lines of high interest short term loans, often known as “payday loans” in many places. Payday loans are related to personal loans, but they’re not the same.
The process of applying for a personal loan is usually pretty painless and easy. You fill out an application, and give permission for the lender to run a credit check. They’ll look at your income, job status and credit, and review your application. They’ll make a decision about whether to offer you the loan and then, if you want to continue, draw up a promissory note for you to sign.
In some cases, a personal loan may be available the same day you apply. In other cases, it may take longer and you might need to wait.
If you’re using the personal loan to pay off debt, you can save a great deal of money in interest. In fact, this is one of the most common reasons that people take out personal loans. Some financial institutions will even offer to directly pay credit cards, for example, if you want to use the personal loan to pay off debts.
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