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A personal loan is different from a mortgage loan in that the loan is not secured by the value of the collateral asset to be purchased though the loan. Personal loans can be either secured loans, or unsecured, and can be used for whatever purpose you wish.

There is a great variety in the term and fees for different personal loans available, and you should endeavor both educate yourself about the different options available to you, and as well you should make a concerted effort to shop around and evaluate a number of different prospective lending institutions. You will see that there is a great variation in loans offered, and by getting the best fit to your needs, you can save a substantial amount of money.

There are two major classifications of personal loans, secured and unsecured. A secured loan implies that the value of the loan is backed by a collateral asset of equal or greater value to the loan amount requested. Commonly your house or car can be offered as collateral, but any significant asset can be offered, provided the bank accepts the collateral as acceptable. The secured personal loan is seen as preferable by the lending institution, as their risk is minimised by the offering of a collateral asset; and they will reward you with a lower interest rate for this collateral asset. The risk of course is that if you default on the terms of the personal loan, then your significant assets are at risk for repossession. You should not offer your house as a collateral asset if you think there is even the remotest possibility that you will default on the loan.

An unsecured personal loan is not backed by a collateral asset. These loans are given based primarily on the strength of the loan applicant's credit score. If you have a strong credit rating, and a long history of on time and in full repayments, then you should have no difficulty securing an unsecured personal loan. The interest rates given on an unsecured personal loan will always be higher than a comparative secured personal loan, as the risk to the bank is proportionally greater. You may be able to achieve an unsecured loan even if you have bad credit. There are now many competing online lending institutions and some of these operate in niche markets such as bad credit loans. These operators may be willing to offer you a secured personal loan even if you show a history of bad credit. You will pay significantly higher interest rates to compensate the lending institution for their increased risk.

Regardless of the loan offered, you have the choice of either a fixed rate or variable rate loan. A fixed rate loan is far more common, as most people prefer the increased security of knowing that their repayments will never go up. A variable rate will follow the interest rate markets, and can either get more or less expensive, depending on market fluctuation. Banks will sometimes offer better interest rate terms on a variable rate loan.

A personal loan can be a great solution for anyone burdened by a high level of consumer debt. Consumer debt, accumulated through the use of store credit and credit cards, normally carries a severe interest rate; and you can benefit greatly by refinancing this debt into a longer term and lower interest rate personal loan. Your payments will fall dramatically through the use of a personal loan, and you will maintain a good credit rating as you will fulfill your debt obligations in full.

A personal loan can be a flexible financial option for any number of circumstances. The personal loan interest rates will be more expensive that a mortgage, but will be far lower than other consumer debt repayment options.



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