Personal Loans
Although the name of these loans make it sound as though the loan is from one person to another, the true meaning of the term “personal loans” is a loan that is used for personal purposes. In other words, the loan is given to the borrower to use for vacation, debt consolidation, a major purchase or whatever else the consumer wants to use the loan for. Borrowers with personal loans usually don’t have to reveal to the lender what the loan is for unless the purpose is to consolidate debt into one account and this affects the borrower’s debt-to-income ratio, making them eligible for a personal loan that they may not have qualified for before the consolidation.
Personal loans are usually unsecured loans. This means that there is no collateral used to secure the loan. You may have also heard this type of loan referred to as signature loans. It’s called this because the only thing the lender gets from you to ensure payback is your signature. This makes the loan transaction legally binding, but it’s not as if your car or your home is on the line if you default on the loan.
What are personal loans used for? They’re used for just about everything. Some people use them to consolidate some of their debt into one account while other people use personal loans to finance vacations. It is also common to use a personal loan to pay for unexpected repair costs or to make a large purchase. The great thing about personal loans is that they can be used for just about anything.
Keep in mind that a personal loan is not always the most cost-effective option. For example, if you are looking for money to do some home improvements, you will get a better interest rate and more attractive terms by using a home equity loan. Of course, there are some people who would rather not use the equity in their homes as collateral for a loan, so for these people a personal loan is a good option.
If you’re thinking of obtaining a personal loan as a way to pull together the money you need to make the down payment on a home, keep in mind that some mortgage lenders frown upon this practice. Although it varies from lender to lender, some lenders simply will not approve a home loan if the down payment comes from a personal loan. Talk to your mortgage lender before you make this move.
