Personal Loans

Let's face it, not all of us have pockets deep enough to buy a house or car on a whim. For most of us, the only way to manage such expenses is by borrowing. That's the purpose of personal loans: they let you make large purchases while paying at a pace you're comfortable with. Here's a quick guide to personal fast loans and how to handle them.

Types of loans

Personal loans can be classified into two general types: secured and unsecured.

• Secured loans are by far the most common scheme. In a secured loan, the lender requires you to put up one of your assets as collateral, which they can claim if you fail to pay back the loan. This is usually the same asset you'll be buying with the loan; i.e. your car for a car loan or your house for a mortgage. Secured loans are less risky for the lender, so they come with lower interest rates and usually better flexibility.
• Unsecured loans don't require any collateral, except in some cases for post-dated checks which will mature on a given date. Because there's no security, lenders take on much greater risk when they grant unsecured loans. To compensate, they charge much higher interest and set more rigid terms. Often, there will be greater penalties for missed repayments and fewer provisions on early repayment. Unsecured loans are usually reserved for non-conforming cases, such as students and borrowers who are unable to provide security.

Choosing lenders

Personal loans may be offered by banks, credit unions, or other financial institutions. While banks are the most popular choice, smaller companies sometimes offer better rates. Because credit unions are member-owned, they don't maximize profit by charging excessively; instead, they pass on profits to customers by giving them better deals.

When choosing between lenders, be sure to take into account the total cost of the loan; that is, all the other fees in addition to the interest and principal. These may include application fees, closing fees, credit checks, and maintenance costs. Some lenders hide this information to make their fast loans look cheaper. Make sure they are clearly outlined in a written contract signed by you and your lender.