Personal Loans

Personal Loans and Payday Loans

Personal loans are unsecured loans. That is, there is nothing put us as collateral for the loan. There is nothing than be repressed to quickly discharge the loan.

Personal loans differ from auto loans and mortgage loans because with an auto loan, the car can be repressed to quickly pay off the loan. With a mortgage, you put up your house as collateral and can lose you home if you default on the mortgage.

For this reason, personal loans have a higher rate of interest attached to them. When you are given a personal loan, the loan officer has to make a judgment as to the likelihood of you paying back the loan. If you don't pay, it is a more costly and lengthy process to recover the loan amount.

So, because personal loans have more risk, they are more expensive (in terms of interest) than secured loans.

You can generally get a personal loan from the financial institution where you do your banking. Once you apply for a personal loan, the loan officer will obtain your credit report and credit score.

Your credit report contains information about your payment history, including late payments and non-payments. It lists all your credit accounts and how much you owe on each. It lists an bankruptcies and a host of other financial information about you. All this information is reported to the three major credit reporting agencies by the merchants, utilities, and other credit issuers you deal with.

Your credit score is computed from the information contained in your credit report. The higher your score the better a credit risk you are. The lower your score, the more likely you are to not pay your bills on time.

Once the loan officer reviews your credit file, he or she can determine the amount of a loan they will trust you for. And they will determine what interest rate to charge you. As you may imagine, people with bad credit may not get a personal loan at all. Those with marginal credit will get a personal loan at a higher interest rate because they are higher risk borrowers.

Some people who cannot get a personal loan at their financial institution will resort to using a "payday loan" service. You can see many of these on the Internet and on many street corners.

People who have trouble making their income meet their expenses often resort to payday loans. But, the cost is staggeringly high.

Several sources, including a consumer report by the FTC (Federal Trade Commission) and the CFA (Consumer Federation of America) state that usual the usual annual percentage rate for a payday loan is between 350 - 650% with some as high as 780%.

A loan of $100 ranges in cost between $15 - $30. If the loan is not repaid by the pay date then it can be renewed with another fee due at each renewal. A loan of $100 can cost $60 in fees after 3 renewals.

So, it is best to lean to manage your money and not use payday loans. But, if you do take out a payday loan, you should be sure to pay back the borrowed money as soon as possible.

We hope the following personal loan resources will be helpful to you.

Consumer Debt and You

usiness.scotsman.com/topics.cfm?format=rss&tid=136725