Jul 31, 2020
Chartered Financial Analyst
Personal Loans are generally known as unsecured loans because they are issued and supported by person's credit history and ability to pay it back rather than by collateral. Thus, Personal Loans that are not secured by property collateral are called Unsecured Personal Loans. These types of Loans are obtained for various purposes. Among the most common ones are debt consolidations, vehicle purchases, vacation trips, home or medical bills. Usually, Borrowers with good credit history and debt to income ratio may qualify for personal loans. However, there are lenders who offer financing options to those who have lower credit scores due to a new credit history or certain outstanding balances.
Annual Percentage Rate and Terms
The annual percentage rate or the interest rate for a whole year varies. The APR range for Personal Loans may be from 4.99% to 35.99% depending on lenders as well as personal financial standings. Some lenders consider borrowers with solid financial standings and good credit history as their primary target market, offering Personal Loans with lower interest rates. Others provide higher risk Personal Loans with higher annual percentage rate. Regardless of any financial risks, lenders offer Personal Loans with fixed APR and terms. The Personal Loan terms are usually 2-5 years. The amount may also vary from $5000 to $100000.
Making Loan Payments on Time
As with any other lending practice, borrowers are expected to repay Personal Loans on time and as agreed per the loan agreement. Making payments on time is not only a requirement of the loan terms, but is an essential way to increase positive credit reporting information. Installment payments have a high impact on the overall consumer credit report and scoring factors. Creating an acceptable payment history is vital for those borrowers who are newly building or rebuilding their credit after a financial setback. Lenders do understand that sometimes situations change during the course of a loan term. New employment may mean that borrowers are now paid bi-monthly instead of weekly. Life situations like this may necessitate a temporary or permanent change to the Personal Loan terms.
Lenders are often willing to adjust the payment due date in order to assist a borrower who is finding it difficult to make schedule payments. Payment arrangements may also be available in other cases, such as temporary loss of income. Communication is the key to success in these situations. When borrowers are proactive and make contact with their creditors or lenders at the first sign of trouble, they are more likely to be satisfied with the outcome. However, when lenders are unaware of any potential challenges with their borrowers, they may proceed with collection proceedings.
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