What Is A Personal Loan?

Online, June 20, 2011 (Newswire.com) - Believe it or not, there are those who don't understand what a personal loan is. A personal loan is typically a general-purpose loan that the recipient can use as he or she chooses. This type of loan is typically more difficult to obtain, and they have strict qualification requirements.

To help you better understand what a personal unsecured loan is, here are some things you should know.

Personal loans are unsecured, which means there is no collateral required. This means that if you default on the loan, the lender can't take your property as payment for the loan. This is why these loans are so hard to get. But even though the lender can't go after your property if you default, there are other collection actions he can take, including reporting late payments to credit bureaus, hiring a collection agency and filing a lawsuit against you.

The amount of personal loans can range anywhere from $500 to $50,000. The amount is fixed, and depends on your credit score - the better your score, the more money you can borrow.

Personal loans also have fixed interest rates, which don't change for the life of the loan. The rate is also dependent on your credit score, and the same rule applies: the better your credit score, the better rate you'll get. The rate may also be tied to your repayment period - in other words, you'll pay a lower rate on a shorter-term loan. But be cautious: there may be a penalty for paying the loan off early.

If you need to apply for a personal loan, it may be best to do business with a bank you already do business with, since you will likely get a better rate. But remember: as with any loan, it's important to choose your personal loan wisely - only borrow what you can repay.