Personal Loans: An overview

Personal loans are a type of credit service aimed at individuals who need a certain amount of money. They can be offered by banks or general financial companies, such as credit unions and other types of institutions.

You can use personal loans for various purposes. Here, we provide a complete overview of the main details you need to know about personal loans. Check it out!

What is a personal loan?

The term “personal loan” is quite broad and even generic. This is because it can mean a series of formats with some main bases:

• Receiving a pre-determined amount of money;
• Repaying with interest rates and the number of installments also pre-determined before signing the contract.

Types of Personal Loans

Now that you know more about what a personal loan is, you can learn about the main types:

Unsecured Personal Loans

This is the most common format precisely because it does not require collateral. To apply for the money, you do not need to pledge any property or asset.

In fact, the credit is granted based on the borrower’s history and score, as well as their ability to pay (verifying monthly income).

Secured Personal Loans

This is the type where the borrower uses some personal asset as collateral, such as a house, car, business, and other assets.

Thus, if the borrower does not repay, the institution can take possession of the asset, which also helps to reduce the interest rate due to the collateral itself.

Payday Loans

This type is also a personal loan, but the difference is that you make the payment on the next business day.

Therefore, it is a kind of ‘advance’ on the monthly income, and when you receive it, you will need to repay it with interest.

Personal Loans for Specific Purposes:

Most personal loans can be used for anything. However, some companies offer amounts for specific purposes, such as weddings, studies, and even debt consolidation.

Advantages of Personal Loans

Check out the main advantages of personal loans:

Flexibility

The very fact that a personal loan does not need to have a specific purpose in most cases can adapt to any situation. Although at times you may need to indicate the use to seek better options, you can use the money as you wish.

Simplification

Personal loans aim to be faster than other types of credit, especially if you have a good credit history.

Fixed Interest Rates

Most personal loans have fixed interest rates, which you will know exactly when signing the contract, with no changes or surprises.

Variation in Payment Terms

Personal loans offer good flexibility, with the possibility of repaying in months or even years, usually up to around seven years in most cases.

Disadvantages of Personal Loans

There are also some disadvantages, such as:

High Interest Rates

In the case of unsecured loans, the rates can be high, especially because the financial institution takes more risks of default.

Credit Impact

Failure to repay the installments can negatively affect your credit history, making it difficult to obtain credit in the future.

How to Apply for a Personal Loan?

First of all, make sure you really need a personal loan.

When determining how much and why you need the loan, research different financial institutions to seek the best options.

The platforms provide simulators to predict exactly the value of the interest and installments.

After choosing the company, gather the documents to apply, such as proof of income and residence, identity, and credit score.

Steps to Apply

Most companies allow you to complete the entire loan application process online. When accessing the website, fill out the form with all the information and submit the documents.

The institution will perform a credit analysis and give a response, which can be a very quick process. Upon evaluating your credit, the financial institution will issue a response.

If positive, read the contract carefully and sign it. After signing, some institutions promise to send the money to the account within one business day, depending on the conditions of each brand. See more content:

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