Personal loans are usually general purpose loans that can be borrowed from a bank or financial institution. As the term indicates, the loan amount can be used at the borrower’s discretion for ‘personal’ use, such as covering an unexpected expense such as hospital expenses, home improvements or repairs, debt consolidation, etc. or even for expenses like education or going on vacation. However, apart from the fact that these are quite difficult to obtain without meeting the prerequisites, there are other important factors that you should know about personal loans.

1. They are unsecured, which means that the borrower is not required to put up an asset as collateral in advance to receive the loan. This is one of the many reasons why it is difficult to obtain a personal loan because the lender cannot automatically reclaim the property or any other asset in the event of a default by the borrower. However, a lender can take other steps, such as filing a lawsuit or hiring a collection agency that, in many cases, uses intimidation tactics such as constant harassment, even though these are strictly illegal.

2. Loan amounts are fixed: Personal loans are fixed amounts based on the lender’s income, lending history, and credit score. However, some banks have pre-established amounts as personal loans.

3. Interest rates are fixed: Interest rates do not change during the life of the loan. However, like preset loan amounts, interest rates are largely based on credit score. Therefore, the better the rating, the lower the interest rate. Some loans have variable interest rates, which can be a drawback as payments are likely to fluctuate with changes in interest rates, making payments difficult to manage.

4. Payment periods are fixed: Personal loan payments are scheduled in fixed periods ranging from 6 to 12 months for smaller amounts and 5 to 10 years for larger amounts. While this may mean smaller monthly payments, longer repayment periods automatically mean higher interest payments compared to shorter loan repayment periods. In some cases, foreclosure of loans comes with a prepayment penalty.

5. Affects Credit Scores: Lenders report loan account details to credit bureaus that monitor credit scores. If you miss monthly payments, your credit ratings may suffer, reducing your chances of getting future loans or applying for credit cards, etc.

6. Beware of Lenders Who Approve Loans Even with Bad Credit – Many of these cases have been shown to be scams in which people with bad credit are persuaded to pay up-front fees via wire transfers or cash deposits to guarantee the loan. without anything in return.