Personal loans, which are also known
as signature loans, are usually approved based on the borrowers ability to repay the loan in
addition to their credit
history. When a loan is unsecured, it means there are no collateral assets required.
The purpose of an unsecured personal loan is
usually for debt consolidation, home improvement,
paying for education, medical bills, or cash. Loan rates are not based on owning a home
or using home equity, because the loans are not secured by a lien against property.
A personal loan may have a fixed interest rate with the funds available in one lump
sum, or it may be a line of credit with a variable interest rate, and the money can be withdrawn in
different amounts as needed. Loan approval is typically quick, usually from 1 to 3 business days.
Some things to keep in mind when
comparing loans: consider the total cost of the loan and not
just the monthly payments, make sure all the terms of a unsecured personal loan are in
writing, and not verbal promises, and look
for any hidden loan fees in the estimate of closing costs.
Personal loan rates
are typically higher
than home equity loans, because they are generally considered a higher
risk, since there is no collateral security. Also,
lenders may charge
a periodic loan service fee, the term is usually shorter, and the interest
paid is not tax deductible.