A personal loan is a type of loan that individuals can borrow from a bank, credit union, or online lender for personal use. Unlike specific loans such as mortgage loans or auto loans, personal loans can be used for various purposes, such as debt consolidation, home improvements, medical expenses, education costs, or even a vacation.
When you take out a personal loan, you receive a lump sum of money from the lender. You are then required to repay the loan over a specified period of time, typically in fixed monthly installments. The repayment term can range from a few months to several years, depending on the loan agreement.
Personal loans may be either secured or unsecured. Secured personal loans require collateral, such as a car or property, which the lender can claim if you fail to repay the loan. Unsecured personal loans do not require collateral but may have higher interest rates since they carry more risk for the lender.
The terms and conditions of personal loans, including interest rates, repayment period, and eligibility criteria, vary depending on the lender and your creditworthiness. Lenders typically assess your credit history, income, employment status, and debt-to-income ratio to determine whether to approve your loan application and at what interest rate.
It’s important to carefully consider the terms of a personal loan and ensure that you can comfortably meet the repayment obligations before taking one out.