Small personal loans are unsecured loans, loans that are made to an individual usually without any collateral; rather it is only supported by the borrower’s credit worthiness. Borrowers must usually have high credit rating to avail of personal loans.
Because they are not supported by any type of collateral, unsecure loans are generally much more risky for the lenders, as such these kinds of loans have higher interest rates than those which are secured. Though the rates are much higher, the interest rates may still be lower than that of credit cards. Unlike mortgage loans, personal loans are not tax deductable.
How to apply for Small Personal Loans ?
A small personal loan can be great way to build credit, or a short term solution for a specific financial need. The specifics of applying for a personal loan may vary from lender to lender, but the basics for application is are the same.
1. First you should determine the amount of money you would need. Only barrow what you need, you can save money on interest if you barrow to much of what you need.
2. Look for the best interest rates and terms for your loan. The terms are the length of time which you will need to pay the loan, a lower interest rate means it will cost you less money.
3. Fill out application. Provide them with your name, date of birth, address, and social security number if needed. Also specify the amount you want to borrow plus the purpose of the loan.
4. Provide any additional documentation the bank may request. This may include employment information, bank record, tax returns, or other financial paperwork. This is to prove that you are able to pay off the loan.
5. Submit the application and wait for it to be approved. The decision of whether or not your loan will be approved depends on the specific bank or lending institution. If approved the money will be sent to you, and repayment of the loan will begin generally within a month.
Advantages and Disadvantages of Personal Loans
Advantages
- · Availability: Personal loans are not that hard to get. They are offered at almost all banks, at generally reasonable interest rates. In comparison to other types of loans, personal loans are easy and convenient to get.
- · Unsecure Loan: As stated personal loans are unsecured loans, meaning there is no collateral security in order to get this loans. All that is needed I your ability to pay off the loan.
- · Less time: The processing time in getting the loan is less, because there is no need for security or guarantee for personal loans.
- · All purpose: The amount or credit taken from the personal loans can be used in any way you want, since it is not mandatory to specify the cause of which you are to use the money.
- · Minimum Paperwork: Personal loans do not require much paperwork as your property is not mortgaged.
Disadvantages
- · Criteria for qualification: Getting a personal loan depends on whether you are qualified. Qualifications vary from lender to lender, and most guidelines are strict.
- · Credit History: It is needed for you to have good credit history to acquire personal loans, since they are unsecured and no collateral is offered to get the loan. No lender would want a borrower with bad credit history. So prior to applying for a personal loan, first make sure you have good credit history.
- · Bank Account: It is required for you to have a bank account to avail of personal loans. Not necessarily from the same bank you are borrowing from.
- · Lender’s Risk: As it is a unsecured loan, the risk is greater for the lender because there is no collateral or guarantee that the loan will be paid off. If the borrower fails to pay the loan, the recovery will be expensive and tedious for the lender.
