A personal loan is a type of unsecured loan that helps you meet your financial needs. Unlike a secured loan, such as a mortgage or car loan, a personal loan doesn't require any collateral, like your home or car. Instead, lenders assess your creditworthiness based on factors such as your credit score, income, employment history, and other financial details.
Here are some key features of personal loans:
- Unsecured: As mentioned, personal loans are unsecured, meaning they don't require collateral. This makes them accessible to individuals who may not have assets to pledge as security.
- Fixed Amount: With a personal loan, you receive a lump sum of money upfront, which you repay over time in fixed monthly installments.
- Fixed Interest Rate: Personal loans typically come with fixed interest rates, meaning your interest rate remains the same throughout the loan term. This makes it easier to budget for your monthly payments since they won't fluctuate.
- Flexible Use: You can use a personal loan for various purposes, such as consolidating debt, financing home improvements, covering medical expenses, or funding major purchases.
- Repayment Term: Personal loans usually have repayment terms ranging from one to seven years, depending on the lender and the amount borrowed. Shorter terms may result in higher monthly payments but lower overall interest costs, while longer terms may have lower monthly payments but higher total interest expenses.