Personal loans occur when funds are borrowed from a bank, credit union or online lenders, and you've to pay back in fixed monthly payments, or instalments (EMI), over a predetermined period of time. Mostly, such loans are claimed to be unsecured, which means they’re not backed by collateral. The lenders will decide whether to offer the unsecured personal loan based on factors such as the individual's credit score, credit history, debt-to-income ratio, and free cash flow.
If the individual doesn't qualify for the unsecured loan, it may get a secured or co-signed loan. In contrast to unsecured loans, the secured loans are backed by any asset of your choices such as your car or home, and the lender will repossess your property if you default. A co-signed loan includes an additional applicant who has a strong credit profile and will help guarantee the loan. Moreover, they'll also be responsible for missed payments.
The other types of personal loans are fixed-rate loans, in which the person's rate and monthly payments stay the same, or variable-rate loans, in which the person's rate and payments change. Personal loans are used for various purposes. Naming a few common uses would be home improvement projects, debt consolidation, to finance a wedding, vacation, medical bills, and refinancing an existing loan.