Life can be expensive. People need a place to live, food, clothing, and often a car. Then there are unexpected expenses such as medical bills and home or auto repair. It’s common not to have the available cash to pay for many of these things. Debt can also pile up leading to large amounts of interest. People frequently need a little financial help. One possible source of aid is a personal loan. It may be a valid solution for financial problems. It is important to understand how they work.
A personal loan is acquired from a bank or other financial institution such as MaxLend. The borrower receives a specified amount of money with a monthly payment and a set number of months in which to repay the loan. They are usually unsecured, meaning no collateral is needed. Depending on the institution and the borrower’s credit score, the interest rate can range from 3% to 36% and the term of the loan may be anywhere between one and seven years depending on factors such as the amount borrowed. MaxLend loans and quick cash loans are two examples of a personal loan.
How a Personal Loan Works
In order to receive a personal loan, the party looking to borrow must fill out an application. The lender reviews the application and can either approve or reject it after looking at factors such as the borrower’s credit history, annual salary, and financial situation. This can happen in a few hours or it may take several days. Upon approval, the money is deposited into the borrower’s bank account where it is available for however they wish to use it. Payments being at the start of the following month and continue until the entire loan is paid off.
The Parts of a Personal Loan
There are several important parts of a personal loan. They regulate how the loan is paid off. These include:
- The length of the loan – Also called the terms, this is how long it will take to pay off the loan. Payments are monthly and can run for a period of one to seven years.
- Interest rate – This is an annual percentage rate (APR) which is the cost of the loan. Interest rates vary among lenders and by the credit score of the borrower.
- Monthly payment – This is how much the borrower pays each month and it is based upon the amount borrowed, called the principle, and the interest rate.
- Origination fee – Some lenders will charge this fee on top of the interest. It is a percentage of the money borrowed, up to 6%, and is added to the total amount borrowed.
These parts are determined by the lending institution. They will look at how much the borrower is asking for, their credit history, annual salary, rent or mortgage, and other living expenses. Once these have been examined and the loan approved, the lender will supply the borrower with the terms of the loan.
Sometimes, things happen that require more money than a person has available. Personal loans can be helpful in these situations. Knowing how they work and what the terms are is important before borrowing.