Taking loans has become quite a task, especially after the economic recession, lenders have become very strict and particular about the background checks, installments, credit reports and in general, the credit worthiness of a person.
Overall, the process of borrowing large loan amounts from lenders has become a hard job, not to mention the risk involved. Apart from that, there is also an uncertainty regarding the repayment procedures and effects on credit ratings. Thus, to be on the safer side, borrowers have started borrowing smaller loans that have a comparatively less repayment amount, and that can be easily repaid in a couple of installments.
What is a Personal Loan?
A personal loan is a loan that is availed by people, principally for personal purposes. A major element of such loans is that the person who borrows the loan does not have to specifically use it for one purpose. Furthermore, it is not mandatory to disclose the purpose of the loan. The personal loan thus, in effect can be used for any sundry expenditures.
The biggest drawback of a personal loan is high interest. Since the loan is used for purposes not known to the lender, the personal loan's interest tends to be a little higher. There are some personal loans which have a certain purpose such as medical expenditure or emergency investment, etc. In such cases, the interest is a little low. However, small bad credit loans which are personal in nature, tend to have an exceptionally high rate of interest.
What is an Unsecured Personal Loan?
This type of loan is not secured by a collateral. From the lenders point of view, this loan is quite risky and a high interest rate is often charged on such loan. In order to get a small unsecured personal loan, one basically has to have a good credit rating and report. The better the rating, the less the interest, and better the chances that the loan will get approved.
Some variants of such loans include the small unsecured business loans, which though personal are approved for business purposes or the small bad credit personal loans, which are given to people who have bad credit. It is convention among the lenders to make the bad credit loans, secured. Another alternative is to check the job and salary of the person with bad credit. In such cases, if the borrower as a remarkably good salary and a bad credit rating then the loan is unsecured.
Small Unsecured Personal Loans
These loans are basically unsecured loans which can be borrowed for even shopping and can be repaid in small set of installments. The approval process of these loans is so quick that borrowers get the loan amount within a few hours time. The loan application can be filled on the lenders website, who starts the process of background check instantly. After the background check is done, the credit report is analyzed.
The interest rate is conveyed to the applicant and upon the reply, the money is transferred to the applicants bank account, ready for use. Usually a person with an average credit rating and a good salary gets good small unsecured personal loan interest rates, and a fair installment structure that is relatively easy to repay.
The interest rate depends upon credit score, whereas the loan amount and the repayment period is calculated in accordance with a debt to income ratio. In cases where the lender is not confident about the background check, a 'deduct at source' arrangement is also made with the bank or the employer, but only after the borrower's consent.
Generally such small personal loans come handy during emergencies. However, the high rate of interest is a high cost of credit to pay for. Therefore, research well before borrowing such a loan and make an informed decision.