Personal loan is one that is guaranteed by the credit and assets of an individual. Personal loans are differentiated from business loans and those specifically collateralized by property, such as car loans or mortgages – although some loans are hybrids, requiring a pledge of both a specific asset and one’s personal credit guarantee. What follows are some of the most common types of personal loans, and factors to consider with each:
Personal Loan
Bad credit loans – For those individuals whose credit has been damaged by a a series of negative credit events – ranging from late payments to defaults – a personal loan is likely the only option. These loans may require some kind of security deposit and may start very small. It is important to remember that this type of small loan is often the best way to rebuild one’s credit.
Bridge Loan – A bridge loan is a short-term loan that is designed to help one in an interim period. They are most commonly issued to individuals who need to close on a new house, but have not yet sold their old house. The bridge loan allows them to carry the debt on both. This type of loan can be quite expensive, but serves a specific purpose.
Student Loan – A student loan is a personal loan made specifically for the purpose of paying for school and the living expenses that may be incurred while in school. Many are backed by the government, and it is important to realize that government guaranteed loans cannot ever be discharged, even in bankruptcy.
Reverse Mortgage – This is a hybrid between a personal loan and a mortgage, where an individual receives regular loan payments against the equity in one’s house. As with any personal loan, this type of loan should not be taken unless necessary.
Personal loans play a vital role in the lives of most people and in the healthy functioning of the economy. Before one is accepted, the borrower should make sure that the interest rate being accepted is in keeping with currently available rates. When terms are reasonable, they can serve an important purpose.