Loan, in the financial world, is a debt in the form of money or property, provided by the lender, which could be an organization or an individual, to the borrower at an interest rate, and the borrower agrees for future repayment of the principal sum, usually along with interest or other financial charges. One of the different kinds of loan is the personal loan. Now, what is a personal loan? A personal loan is a kind of loan that establishes consumer credit and can be used for various purposes such as personal use, family expenses, household purposes at the discretion of the borrower. A personal loan is an unsecured loan based on the integrity of the borrower and ability of the borrower to repay the loan from personal income. Repayment is generally on the basis of fixed amount installments over a fixed period of time.
Personal loans are categorized into two basic types, secured loans and unsecured loans. Secured loans are generally associated with the borrower’s property, which is the reason they are also termed as ‘homeowner loans’. On the contrary, unsecured loans are not associated or tied to any of the borrower’s assets. The advantage of an unsecured loan is one of the main reasons that personal loan distinguishes itself from any other major categorized loan and is far more preferable to the borrower. It is a big reason why a consumer prefers personal loan than any of the other major loans from a bank.
Mostly, a bank usually offers unsecured loans of between £5,000 and £25,000. But if the borrower wants to borrow more than £25,000, the borrower will need a secure loan. The APR or Annual Percentage Rate for a loan is the amount of money a borrower needs to pay in interest per year. A bank has to offer its typical annual percentage rate or the APR to at least 66% of the potential customers. Interest rates can either be fixed or may be variable, and it is important for the borrower to decide what kind of interest rate is affordable for the borrower. A fixed rate will remain all the same for the entire term of the loan, and the monthly repayments will remain the same. On the contrary, the variable rate will be subjected to the changes, usually according to the guidelines of the Bank of England base rate. It’s kind of a funny gambling, because when the rates are falling it is a good news for the borrower as the borrower need to pay less interest while on the other side if the rates go up, it might be a hard pinch in the borrower’s pocket as the borrower needs to pay higher interest than expected.
The scheme of personal loan brings a lot of benefits to the customers of the bank as it provides better security and are quick to be administered as less paper work is required. There are so many more advantages. Personal loans do not require to produce any collateral or security as part of the loan process like other loans. Easy availability is another big advantage of a personal loan. Provided all the documents are in place, personal loan can be cleared in a single working day. Availability of a wide range of fund, and the availability of personalized schemes are the other important factors that make personal loan better than any other major bank loans.