A loan is said to be taken when an individual takes certain amount of money from a party, institution/organization or a lender (now the person is said to have incurred debt), in exchange he needs to repay the principal loan amount along with the interest. Now, when loan is taken for personal use or expenses, it is termed as ‘personal loan’.
There are numerous instances when a person needs major financial support at a short notice. It could be wedding, medical emergencies, renovation, children’s higher education and may vary according to the individual’s need. In such scenarios, Personal Loans Texas comes as a savior, potentially being the best option to go for.
Types of personal loan
Depending on the lender, these loans can be secured and unsecured. Now before we delve into it a little more, let’s get to know a very important term, ‘Credit Score’.
A credit score is based on the credit history, the repayment history, the debts and the number of accounts opened. With the help of this credit score, a lender evaluates if the borrower’s ability to repay the loan in a timely manner.
Also, a personal loan is ideal when one takes it for ‘debt consolidation’. In this the borrower take out one loan to pay off the other so as to make the repayment of debt simpler and hence uplifts your ‘credit score’ very likely.
In a secured loan, you require some type of collateral that would work as an asset in order to borrow the loan. In this way, you secure your personal loan in the form of monetary asset or with a physical asset such as your vehicle. In case, you fail to meet the term for repayment, the lender could keep this collateral to satiate the debt. However, this option is always an advantage for the lender.
Note: People with a bad credit score can easily opt for this option.
Features of secured loan:
- Low Interest Rate: Provides lower rate of interest because the obligation to keep an asset as security reduces the risk to the lender. Also, the asset must solely belong to the borrower.
- Collateral influencing the loan amount: The loan amount could be taken up to a certain value of the asset that has been kept as collateral. This acts as a restriction for the borrower.
- Risk of losing your asset: If you default on a secured loan, the lender seizes your collateral.
- These loans are usually fixed and can only be utilized for a specific purpose.