What Is A Personal Loan? Terms To Know
A personal loan is a short-term, unsecured loan that you can take out to help with any financial need. The funds are available in as little as one business day and typically have a fixed interest rate. Personal loans are loans taken out to help people with their everyday financial needs. Personal loans are not the same as a business loan, and they aren’t meant to be used for large purchases like cars or homes. They can be used to cover smaller expenses like paying down debt, starting a business or buying a computer.
Personal loans are generally offered by banks and credit unions, but they are also available from lenders in the private sector. These lenders typically charge interest rates between 5% and 20%.
The type of lender you choose depends on your personal situation and the loan amount you want to borrow. Some lenders offer fixed rates for a certain term (for example, 12 months), while other lenders offer adjustable rates that change according to changes in the cost of funds or in your creditworthiness. You can usually find out what rates apply at the time you apply for a personal loan or when you get one — though sometimes these terms aren’t always clear until after you’ve signed up.
The following terms are important to know when thinking about taking out a personal loan:
Term: How long the loan will be available for. The term is typically between one month and five years.
Interest rate: This is the percentage of the total amount borrowed that you pay each month.
Finance fee: This fee may be charged for each payment made on your loan, or it may be included in the monthly payment amount.
APR: APR stands for Annual Percentage Rate, which represents the total cost of borrowing over a year’s time, including interest and fees paid annually.
The best way to learn about a personal loan is by asking your lender what the loan terms are. For example, you might ask how much of your monthly income is required up front, how much can be borrowed and what happens in the event of an early withdrawal.
Personal Loan Definition: A personal loan is a flexible way to borrow money for a variety of uses. They’re typically available through banks, credit unions and other financial institutions. You can use personal loans for everything from paying down debt to buying a home or car.
A personal loan is not the same as a mortgage or auto loan, so there are different terms to know when you apply for one. Here’s what you need to know about the different types of personal loans:
Fixed-rate loans. These loans are available with fixed interest rates and terms that can be as short as three months or as long as five years. You’ll pay a set amount each month and your interest rate will stay the same until your loan is paid off.
Floating-rate loans. Floating-rate loans offer variable interest rates based on market conditions at any given time during your loan period, which can range from a few days to several years. The interest rate will change daily or weekly depending on market conditions and current lending rates.
Adjustable-rate mortgages (ARMs). ARMs allow borrowers to lock in an initial rate for an extended period of time before their payments change over time based on changes in their overall financial circumstances, such as income growth or inflation.
You must know the common terms before availing instant personal loan in india.
Here are some common terms for personal loans:
Term: The length of time for which you borrow money. The term could range from one month to five years.
Interest rate: The amount per year that you pay on your loan. This is a percentage of the amount borrowed. For example, if you borrow $10,000 over five years at a 10 percent interest rate, your annual payment will be $500.
Annual percentage rate (APR): A yearly figure that tells you how much money would have to be paid each year on an annual basis on this particular loan.
Payment schedule: How often payments are made and when they occur during the loan period.