Try to understand personal loan before applying for it. Personal loans are helpful to supplement money in your account if you are facing shortage of funds. However, personal loan is not recommended always because it is an unsecured loan. Before applying for personal loan try to understand it completely.
Attributes of Personal Loan
Personal loan is an unsecured loan means you can’t use any property such as home for the collateral. This is the basic difference between personal loan and other kinds of loans. Other attributes of personal loan are as follows:
High interest rates: Personal loan offers higher interest rates than that of other types of loans such as mortgage or home equity because it is an unsecured type of loan. But still, personal loan interest rates are lower than that of credit card interest rates.
Fixed Term: Personal loan contains fixed term interest rates in certain cases such as if they can be due at the end of the determined term.
Revolving Line of Credit: Personal offers revolving line of credit same as credit card. In this case the interest rates on personal loan are variable.
No Tax Benefits: Personal loan interest is not tax deductible.
Pros and Cons of Personal Loan
Here are the pros and cons of personal loan that you should know before applying for it.
Pros
- Personal loan is the best available choice if you are in great need of funds and don’t have enough equity in your home or you don’t own your personal home.
- Personal loan offers fixed interest rates in certain cases.
- Personal loan offers lower interest rates than credit cards.
Cons
- The interest on personal loan is not tax deductible.
- The interest rates can be as high as 10% or more. While the interest rates for home equity loans or mortgage are approximately 6%.
- Due to high interest rates you are required to pay more money than that of home equity loan or mortgage.
Still, personal loan is the best available choice for those who are facing shortage of funds and don’t have their own home.
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