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Among the wide variety of types of credit offered to individual borrowers are personal term loans. Personal loans are different from auto loans, mortgages and lines of credit in several ways. And unlike equipment loans and working capital loans, they are suited for individuals rather than businesses. However, they do have similarities with other types of credit, which will be covered in this article.
Most people find themselves in circumstances at one time or another in which a personal term loan can be the exact solution for their needs. Reasons can range from not having enough cash to cover the situation or the borrower does not want to tap into their savings. Like all credit, performing due diligence will avoid costly mistakes down the line.
The subjects about personal term loans in this article are:
Basically, a term loan is a specific amount of money borrowed from a bank or other financial institution that is repaid on a pre-determined schedule and within a certain timeframe (term). Either fixed or adjustable interest is charged on the amount that Is borrowed, depending on the lender.
Usually, term loans last between one year up to ten years for individuals. Most term loans are paid in even amounts. This method makes it easier for the borrower to budget their expenses each month. But in some cases, repayment is made in gradually increasing amounts during the loan period. This method of payment potentially saves interest over the life of the loan, and pays the loan off sooner.
Once all of the money, plus interest, is paid in full (usually at the end of the term), the financial obligation ends. If more money is needed later, the borrower is free to apply for term loans or other personal financing.
People choose term loans over credit such as second mortgages or home equity loans because there are no appraisal or origination fees associated with term loans. Other reasons borrowers find term loans beneficial include:
Term loans are also preferred by people who do not want to maximize their credit card limit, but need extra money for an unexpected expense. They are also used to pay for a purchase, rather than having an open line of revolving credit.
Handling credit responsibility should be the first consideration whether applying for a term loan or any other type of credit. Since so many credit products are available, borrowers should consider whether a term loan is the right choice for what they are trying to accomplish. Term loans might not be the answer for borrowers in the following situations:
People with bad credit can also find lenders that offer term loans. Usually, these are short term loans that are used to solve an unexpected financial problem. The loan is paid back quickly, often within a few weeks. Repayment is most always made through bank account debit.
Short term loans applications are available online. They are similar to traditional loan application with regard to information and documentation. Once the lender and borrower agree on the amount, terms, and fees, the loan is approved. Rather than receive a check, the proceeds are deposited into the borrower’s bank account.
Short term loans are designed for lower amounts, commonly no more than $1,000. These are term loans that charge high fees and interest, but have helped many borrowers quickly fix an unexpected financial emergency.
There are other options for people who find themselves in a financial pinch. Depending on how much money they need, they might get loans from friends and family or get cash advances on their credit cards. Other financing options may mean getting second mortgages, or pay day loans.
With the high interest, fees, and credit risks involved in getting term loans, credit cards, and other financing, many people have chosen alternative means to get extra cash they need including:
There are definitely situations where the only option is to apply for term loans. In these situations, the wise thing for the borrower to do is take special care when it comes to choosing lenders. Shopping for interest and repayment terms that are the right fit can not only solve the financial problem, but help improve the credit of the borrower.
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