Personal Loans: What is it? How To Apply? And…how to pay it off?

Life is full of surprises. As per your normal routine – you go to work, earning a paycheck, comfortably paying your necessary bills – then something unexpected happens, and that something comes with a hefty price tag! Maybe your car breaks down, your child needs help paying for college, you suddenly feel the need for a luxury vacation, or you just want to consolidate your debts. Such personal loans can comes in handy.

What is personal loan?

A personal loan is a loan that helps to tight over a temporary matter. There are two types of personal loans available: secured personal loans and unsecured personal loans.

  • A secured personal loans is one that uses collateral, such as a house or car, to back the loan.
  • A unsecured personal loans, which are by far much more common, don’t need to put up any kind of collateral which can apply at any bank or licensed moneylender.

How do i apply for a personal loan?

Many banks and licensed moneylenders usually have websites where you can apply for a personal loan online. All you need is just fill-in your personal information, proof of employment and the amount of money you want to borrow. After filling out and have it submitted, a loan representative will then contact you to discuss your personal loan options. As interest rates and loan fees can differ between lending institutions, you should shop around before you apply for any specific personal loan. And do inquire about the fine print involved in your personal loan application.

Aside from interest rates, loan amounts, and time of repayment, there are some additional aspects of your personal loan you need to consider, such as minimum monthly payment and early payment penalty, if any. Lending institutions usually offer with a startlingly low interest rate to attract personal loan applicants. These low interest rates may seem tempting at first, but can double or triple soon if you unable to pays the monthly minimum payment and/or the set time of repayment. Even if you are able to pay the monthly minimum payment but unable to pay off fully till the end of loan term, additional interest will be added as well. E.g $3,000×3%=$3,090 with minimum payment of $100 and time of repayment of 12 months, which mean even though if you have met the monthly minimum payment of $100, but you need to pay-off the total amount of $3,090 by end of the 12 months also, else there will be interest charge for the balance amount on next repayment month and next repayment month, till you finished paying off. So, do find out from your lending institutions on this too.

It’s also important to find out if your personal loan comes with early repayment penalties. In order to lessen the money you spend paying interest, you might try to pay off your personal loan before you reach the end of your loan term. You need to be careful, however, since some lending institutions will charge you an additional fee for paying off your personal loan earlier than you had to.

Once you have found your preferred lending institutions and have your personal loan successfully approved, you will then receive a lump sum either in the form of a cheque, a direct deposit into your bank account or instant cash.

How do i repay my personal loan?

Upon receiving your personal loan amount, you will then need to start making regular monthly payments to the banks or moneylenders in order to repay your personal loan. A percentage of each payment will go towards repaying the principal amount you borrowed with your personal loan, and the rest will pay for the interest your personal loan accrues.

If possible, it is a good idea to pay more than your minimum monthly loan payment. As long as your personal loan didn’t come with any early repayment penalties, the more extra money you pay for each month, the sooner you’ll pay off your personal loan. Make sure that you have to pay off your personal loan before the end of loan term as well. Even if you can’t fully paid your personal loan at the end of loan term, try to reduce as much balance amount as possible, as it could saving you a hefty sum in the long run.

Even though life can be unpredictable, and unplanned expenses may be just around the corner, you can be prepared for them by understanding the ins and outs of personal loans. So, fix that car, pay for your child’s education, consolidate your bills, and go on that vacation. You don’t have to be intimidated by the unforeseen costs life throws your way.