Personal Loans Articles

About Personal Loans

Learn what makes personal loans unique and if they are the right solution if you need to borrow money.

What is a personal loan?

A personal loan is an unsecured loan for a moderate amount of money, usually $1,000 to $10,000 dollars.

Personal Loan Characteristics

Personal loans differ from other types in that they posses certain characteristics:

Personal loans are usually unsecured, meaning you do not have to put up collateral when taking out the loan. In comparison, home loans and auto loans, for example, will require that you place some type of property up for collateral or have a willing co-signer.

Personal loans are taken out for a moderate amount of money, usually between one and ten thousand dollars. In this respect, a personal loan is similar to a credit card. For instance, you would not take out a personal loan for a home, nor would you take one out to go shopping. Personal loans are a sort of median between payday loans and home loans.

A personal loan is usually repaid in a moderate period of time. In comparison to payday loans which much be repaid within a matter of weeks, or home loans which are repaid in a matter of years, personal loans are normally taken out and repaid within 1-3 years.

Is a personal loan right for me?

When you are deciding whether to take out a personal loan, make sure it is the right loan for your needs. Ask yourself these questions:

For what purpose do I need this loan?

Are you taking out the loan to buy a car or house, or do you simply need cash for 'personal' reasons. If you can take out a more specialized loan to suit your needs, do so.

How much money do I need to borrow?

If you need to borrow a very large sum of money, a personal loan will usually not suffice because a personal loan usually has a similar interest rate to that of a credit card. You do not want to be stuck with massive interest charges when you could have taken a different path to get the money you needed.

Personal loans may remind some of credit cards due to both being commonly used for personal purchases and both being issued for moderate loan amounts. But a big difference exists between the two. While both personal loans and credit cards have similar interest rates, a personal loan is different because it is a typical loan, whereas a credit card is not. When you make a payment on a personal loan, you do not free up the credit you just paid off. You are simply paying back a fraction of what you borrowed. With a credit card, on the other hand, you free up your existing credit by paying off some of the balance. It is this distinct characteristic that makes the two different in use.

If you are in the situation where you need money and want to take out a personal loan, assess your needs and decide whether it is the best option.