What is a Personal Loan?
Answer:
A personal loan allows a person to borrow money
from a bank, credit union, or financial institution, and use the funds for a variety of purposes. Personal loans are commonly used for debt consolidations. Since the interest rate on the personal loan is generally lower than a credit card, the borrower can use money from the loan to payoff all debts, and then make a single payment to the lender that approved the personal loan. Other common uses include college tuition, home renovations, wedding expenses, and start-up capital for a small business.

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Several financial institutions offer personal loans. However, getting approved for such loans is often difficult. While the majority of applicants have good intentions and plan to repay the money, lenders have to exercise caution. Prior to approving a personal loan request, lenders normally evaluate a candidate's credit score, current debts, and income. Persons with excellent credit and sufficient income may receive a loan approval, and the lender may not require collateral. On the other hand, unsecured personal loans carry a higher interest rate.  Collateral, which is a piece of property that secures the loan, is generally a requirement for applicants with fair to average credit. If the borrower defaults on the personal loan, the lender can take possession of their property as repayment for the debt.
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