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Here’s a Comprehensive Explainer on Personal Loans

Updated: Jan 10

Personal loans are money that you borrow from a bank or other lender to be repaid in installments. You have to pay the loans back, but you don't have to say exactly how you'll spend the money. They are usually easier to acquire than a credit card and come with their own specific rules.


Personal Loans Without Collateral


There is no need for any assets to be put down as collateral since a personal loan is essentially unsecured. Should you (the borrower) default, none of your property will be automatically seized as a result. This is actually why it's not that easy to get personal loans: collateral that's of equal value simply does not exist.


That said, instead of automatically taking homes or vehicles or other sorts of property, lenders can take other actions. They can sue you, report your delinquency to credit bureaus and/or hire a collection agency to go after you.


What Kind Of Fees And Interest Are Involved?


A person's credit score is what dictates the interest rates on a person's loans. So the higher a credit score is, the lower their loan's interest will go.


Throughout the lifespan of a loan, the interest rate is usually set. That said, there are still certain personal loans whose interest rates can vary. However, variable interest rates exist for some personal loans. Unfortunately, it makes budgeting harder since as the rate changes, the payments will end up being unstable as well.


Why Do People Take On Personal Loans?


There's no one reason that people take out personal loans. Circumstances vary depending on what the consumer's needs are at the time. Personal loans are usually meant for the likes of:

  • College - Sometimes, a person's income can be deemed too high for them to be able to qualify for a federal student loan. In other cases, the interest rate just happens to be better. It should be noted, however, that personal loans don't have tax advantages which federally recognized student loans do. The best course of action to take when personal loans are for college is to check in with a tax professional.

  • Debt Consolidation - This brings debts and credit card payments into a single lump sum. It means that payments every month will be down to a single amount. It usually brings the interest rates of loans down as well, compared to other debts' average interest rates.

  • Major Events - Sometimes, huge milestones come about even when we don't necessarily have the savings for it. That includes the likes of a wedding, a death which means a consequent funeral and moving. This can be resolved quite easily by personal savings.

  • Unexpected Expenses - Sometimes, a credit card just won't cut it. Cracked toilet requiring an urgent replacement? Those repairs are easily way too hefty for a usual credit card. Medical emergencies also fall under this.

Conclusion


Personal loans are essentially money that's borrowed from either a lender or a bank that's paid off through an installment basis. They're usually taken out for major events, unexpected expenses, or college. It's difficult to get compared to other loans because it requires collateral.


Looking to take out personal loans in Memphis, TN? Reach out to Magnolia Finance Co. today! We understand that it’s important to get help quickly when funds are short, though we’re not a payday or title lender. We do our best to make the borrowing process simple and quick.


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