A personal loan enables you to obtain money for personal expenses and repay the funds over time. Personal loans are a form of Loan that enables the borrower to obtain a lump sum of capital. For instance, you could use a personal loan to:
- Moving expenditures
- Debt consolidation
- Medical expenses
- Wedding expenditures
- Home improvements or maintenance
- Funeral expenditures
- Travel expenses
- Unanticipated expenditures
Types of Personal Loans
Loans for individuals may be secured or unsecured. A secured personal loan is one that necessitates the use of collateral. For example, you can secure a personal loan with cash assets, such as a savings account or certificate of deposit (CD), or with a tangible asset, such as your automobile or boat. If you default on the loan, the lender may retain the collateral to satisfy the obligation.
To qualify for an unsecured personal loan, no collateral is required. To qualified applicants, banks, credit unions, and online lenders may offer both secured and unsecured personal loans. Banks consider the latter to be riskier than the former because they cannot collect collateral. This may result in a higher rate of interest on a personal loan.