Personal loans are loans established on the debtor’s debt, credit and income history. As a general rule, personal loans are for personal use, therefore, the term “personal loans”. Anyone can make use of a personal loan without having to worry about the guarantees. Therefore, it is considered as a type of unsecured loans. In general, people who require cash for a new washing machine, for example, would most likely opt for personal loans.
In earlier times, banks are the just economical institution that offers personal loans. With the growing demand for this type of service, additional companies, like supermarkets, department stores, etc., have decided to provide personal loans. According to several statistical reports, approximately 22.1% of “non-mortgage loans” are covered by personal loans. That’s already a large portion in the market now, considering the tough competition within the credit industry.
Which Is the Best for You?
There are three types of personal loans to choose from and each type has its own pros and cons, with notable characteristics that will be adapted to the needs of the consumer. It is the best option to evaluate each type of personal loan before making a decision. Take a look at the basic description of each type of personal loan and, for sure, you will find one that may be the best for you.
1) Balloon Loan
A Balloon Loan is a type of personal loan that is based on a long-term payment. Upon expiration, the borrower must pay a large fee, known as “Balloon Sum”. The key point here is that the loan payment is deferred or postponed at a later date, thus giving the borrower the opportunity to save for the end. Basically, balloon loans are ideal for those people who have discipline in managing their finances. As payments are deferred until expiration, it is possible that borrowers neglect the possibility of saving for the overall payment and end up paying more than what was required. Read more.
2) Installment Loan
Usually, this type of loan is paid in fractional amount, also known as installments. In general, the institutions that offer this type of personal loans are department stores or furniture stores where they provide their products in installments. This type of personal loan is ideal for those people who can’t afford to buy high-priced products in a single outlay. In most cases, installment loans are organized in a fixed phase. Therefore, the borrower can allocate his resources based on the type of installments that his personal loan has.
3) Single Payment Loan
This type of personal loan is the same as the balloon loan, as the loan payment is deferred as well. The just difference is that, rather than paying portions of the loan with the highest rate at maturity, the entire loan is paid at the time the loan has matured. The single payment loan requires a discipline that allows the borrower to pay the entire loan at maturity like balloon payment.
Given these facts, each type of personal loan can vary considerably depending on the type of payment options available. Therefore, it is best that before deciding on the kind of personal loan that you think will work best for you, it is very imperative that you first check your finances, know where you are monetarily and decide your financial life stage. Like this, you can create a feasible timeline for your personal loan, which will allow you to settle your debts as stipulated in the payment method of your personal loan.