Mortgage Dictionary -> Personal Loans
There are many reasons why customers apply for a personal loan - to go on vacation, for major purchases and home improvements, to pay high interest debt, and so on. Other reasons include hospital bills, divorce expenses, urgent home and car repairs, etc.
Uses of Personal Loans
The money can be used in different ways, but this depends on the amount borrowed. If it is a small amount, you can purchase electronics, furniture, small appliances, etc. Financing major purchases such as big-ticket items and large household appliances requires a larger amount. The same is true for renovations, home improvements, and extensions. Banks offer financing in the form of home improvement, car, and vacation loans, provided that applicants have a good credit history. The interest rate depends on many factors, including creditworthiness, amount, bank of choice, and others.
Basically, a personal loan can be used for any reason - your Christmas shopping, college education, emergencies and unexpected expenses, or anything else. If you have equity in your home, you can use it for large purchases and major projects such as home remodeling, home repairs and maintenance, boat and auto purchases, and others. In this case, your home equity serves as collateral to guarantee prompt repayment. This is an important decision because if you default on your loan, your financial institution has the right to seize the property used as collateral. Whether this is a good solution depends on the purpose, your financial situation, whether you are a salaried employee, self-employed, or seasonal worker, and other factors. Having a repayment plan is of great importance given the fact that you will pay a lot of money in interest charges.
Benefits of Personal Loans
The main benefits are flexible repayment schedule, affordable monthly payments, tax benefits, and better financial control. In some cases, interest is tax deductible. Mortgage and home equity payments, for example, are tax deductible. Moreover, borrowers can choose from different closing cost options that meet their needs. There are two ways to go about this. You can make lower interest payments and then cover the closing costs, e.g. using check, cash in your savings account, line of credit, etc. A second option is to make higher interest payments to cover costs such as transaction stamps, title service costs, application fees, attorney fees, and others. This option is not offered for loans that exceed $500,000. While there are closing costs such as home warranties, inspection and appraisal fees, and points, a personal loan is a beneficial solution in that borrowers are offered a flexible product with fixed monthly payments. Choose a product with no prepayment penalties.