Personal loan: Are you a good candidate?
Consider the following criteria to help you decide.
A personal loan is not for everyone. In fact, it can be a poor choice for many borrowers. For others, however, a personal loan is their best option for borrowing money.
The characteristics of a personal loan
A personal loan differs from a mortgage or a home equity loan because it is unsecured. That means there is no property used as collateral for the loan. Other characteristic of personal loans include:
- Unsecured. A personal loan is not secured by property such as a home.
- Rates. Interest rates for personal loans are higher than secured loans (such as a mortgage or home equity loan), but are lower than credit cards (after the credit card’s initial teaser rate).
- Fixed term. A personal loan is often due at the end of a set term, in which case the interest rate is fixed.
- Revolving line of credit. A personal loan can also work as a revolving line of credit like a credit card. In this case, the interest rate is variable.
- Taxes. The interest on a personal loan is not tax deductible.
Who is a good candidate for a personal loan?
Some borrowers may prefer a personal loan.
- Renters. If a borrower does not own a home, a personal loan may be the only option available to them, other than credit cards, if a sum of money is needed.
- Home equity tapped out. If the borrower has already used a lot of their home equity and needs a small loan, a personal loan can be a good choice.
- Small loan. If the borrower only needs a few thousand dollars that can be paid off within a reasonable timeframe, a personal loan might be a better choice than using home equity or credit cards.
- Credit union members. Credit unions typically offer a reasonable interest rate on a personal loan.
If you are considering a personal loan, consider your options carefully. If you cannot get a secured loan, a personal loan is probably a better choice than a credit card. Remember that different lenders have different fees for personal loans, so make sure you shop around. You can compare products from several different lenders at online sites such as www.LendingTree.com. Just remember to use a personal loan wisely and only get one if you really need it.
Published on June 02, 2006
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