PERSONAL LOAN is a type of unsecured loan granted to an individual by banks and other lending institutions. The loan falls under the category of an unsecured loan where no security or collateral is required. In most instances, unsecured personal loans are normally provided by the bank to clients that have been doing business with them for a sizable amount of time. In some cases, personal loans are also known as character loans because the borrower is usually known or a client of the bank. BORROWING money via personal loan is usually low in terms of the amount that can be borrowed. One disadvantage of this type of loan is that its interest is relatively high.
Requirements Needed For a Personal Loan
Prior to releasing a personal loan, the lending institutions will initially and thoroughly check several factors relative to the borrower in order to decide whether said applicant is qualified for the loan. The bank would normally check the loan applicant’s CREDIT Score, his other unsecured debt, current bills, current income, his capacity to pay back the loan and more importantly to know whether the amount being borrowed falls within the limit of the bank’s allowable amount that can be released to a borrower.
What is a Credit Score?
An individual credit score is usually the most important factor banks usually take into consideration before approving a personal loan. A credit score is a statistical number that shows an individual’s “credit worthiness”. These numbers determines whether the loan applicant will be able to repay the loan being applied for. These numbers therefore defines the loan applicant’s credit history. The numbers range from 300 to 850 with 850 being the highest score a borrower can achieve.
Personal Loans as unsecured debt
Personal loans are unsecured debts with a variable interest rate. Credit cards, variable balloon payments on car and/or house loans are classic example of unsecured debt. One very dangerous risk that lending institution takes when providing unsecured loans is the possibility of the borrower to not be able to meet his monthly payment or worst to abandon paying the whole amount of the loan.