Loans help and buyers guide

What is a personal loan?

A personal loan is an exchange of financial asset over a period of time between the lender and the borrower. The loan seeker receives the money from financial providers, which he returns in regular instalments over the loan period. Financial institutions charge a fee for providing this funding service. This charge is known as interest. Personal loan is a generic term. It can be segregated into two categories: secured loans or unsecured loans.

A secured loan is a loan availed against a property. It is also called a homeowner loan because the collateral required to avail secured personal loans typically comes in the form of homes. If the borrower does not repay the loan amount within the stipulated period, he is liable to lose the property that he had pledged with the lender. Unsecured personal loans on the other hand can be availed without putting forth any collateral against it. The best part about an unsecured personal loan option is that there is no threat of repossession of property.

Potential loan seekers should read the fine print carefully before committing to any unsecured personal loan deal. Besides the Annual Percentage Rate (APR) borrowers should be aware of hidden costs, such as arrangement fees, prepayment penalty and brokerage charge.