While eating dinner on a Friday evening, you notice that a portion of your ceiling is peeling off because it has never been repaired for years. You then realize that you are running low on cash since you just started putting up a new business venture that you’ve been planning with your partners for quite some time already. You then realize its time to get a personal loan to get your entire roofing repaired.
Personal loans are effective ways of generating cash for emergency expenditures especially when we are running low from our savings. We know that we have the income coming in but there are certain things that we need to spend on immediately instead of waiting and saving for the amount enough to have that repair. When taking a personal loan, we need to make sure that we are aware of what to expect. Here are a few things we need to make sure before deciding to grab one.
There are two types of Personal Loan
A personal loan can be unsecured, which means that a collateral is not required by the lender when making a loan. This is the most common type of personal loan. Because the loan is unsecured, the interest rates for this type of loan is quite high compared to other loans. The reason for this is to ensure that the principal amount is recovered sooner by the lender.
The second type of personal loan is a secured loan. This is a type of loan that is not very common. Certain lenders no longer exercise this type of loan as they create more paperwork. With this kind of loan, the interest rates fall low because of lien being placed on the asset used as a collateral.
Personal loan offers different ways to compute for interest
A personal loan has two ways of applying its interest. One is fixed interest rate where a fixed rate is applied on the principal amount of the loan. The rate does not change over the life of the loan or the period in which the loan is expected to be paid. The other type of interest is the variable interest rate where the rate changes every year based on the prevailing market rate.