People need loans for a multitude of reasons. They can have varying reasons. Loans for starting or sustaining business. Loans for investment plans. Loans for cars. Loans for pursuing higher studies. A lot of people also take loans for personal use.
There is a lot of competition in the financial market. So the options are great. In the midst of all these options is the big question. Which option to take?
Firstly, consumers have to decide what kind of loan should they make use of. Once they decide on that, there are further decisions to make in the process of application for the loan. What should be the source of the loan? Loans for personal use are offered by banks and other financial institutions like credit unions. Then, there are peer to peer lenders and private lenders as well. The type of loan to be taken is also an important decision. Loans can be on home equity or on credit card.
Personal loans can be of various use. People use them to kick start small businesses, take a vacation, get houses renovated, get married, or even consolidate debt. Personal loans are a little different from other forms of lending. There are some factors which set them apart.
- Interest Rate: Personal loans are usually granted on the basis of fixed rate of interest. The rate of interest does not vary all throughout the repayment of the entire loan. This is unlike line of credit home equity loans which are granted under variable rate of interest. The fluctuation in these rates of interest depend on the economy and change accordingly. If the interest rates increase in general in the economy, then these rates also go up along with it. This is not so in the case of personal loans. Their interest rates remain unaffected by the swings in economy and are constant from the first day to the last day of the duration of loan.
- Term of Loan: Personal loans are to be repaid in a fixed duration of time. This duration can vary from one to five years. The term for personal loans is comparatively lesser than other types of loans which carry a duration of ten to thirty years. The difference in the case of personal loans is that a fixed monthly deposit has to made. This is unlike credit card payments where a minimum monthly payment is sufficient to keep the borrower going. For those people who like the security of knowing when exactly they can clear their loan entirely, a personal loan makes a good and sensible option.
- Entrepreneurs’ Choice: Starting a small or medium sized business is increasingly becoming difficult. To give the business a head start has become a necessity. In a situation like this, a personal loan with a short duration can prove to be very useful and effective. Bagging a loan for business on the basis of a few good ideas is not something banks generally encourage. This is the perfect solution for young and aspiring entrepreneurs to apply for a home loan which banks grant without the same amount of fuss.