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What is a Personal Loan?

What is a Personal Loan?

A personal loan is an instrument that can be used to finance all manner of things. When taking out a personal loan, the individual borrows a set amount of money and agrees to pay it back over a set period of time. These types of loans are sometimes called signature loans, quick loans, easy loans, installment loans, or cash loans, but no matter what they are called, they all work the same way.

Personal Loan Example:

For example, let’s say Steve wants to buy new furniture for his apartment. He has a steady job and a secure source of income, but what he does not have is $2,000 in the bank. Steve needs a bed, couch, and other furniture, but he cannot afford to pay cash for these pieces.

In the above example, Steve could use a personal loan to get the cash he needs upfront. These quick loans can be very useful to people like Steve, since they allow the borrower to pay off the cost of the loan over time.

It is not unusual to need quick cash, and working with a loan agency does not mean that the individual is being financially irresponsible. In fact, these fast loans can help people like Steve control their spending and avoid the cycle of high interest debt.

Advantages of a Personal Loan

When you look at the alternatives, it is easy to see why a personal loan is often the smartest and most financially prudent decision. If Steve were to charge his furniture purchases on his credit card, he would incur interest charges from the date of his first statement. And since Steve does not have $2,000 in the bank to cover the cost of his furniture, he would continue to rack up interest charges at a rate of 18% or more.

The repayment terms for these fast money loans will vary widely from one loan agency to another, as will the interest rate charged by the lender. Some lenders specialize in so-called no credit personal loans, and the interest charges for those loans are likely to be higher than those charged to borrowers with more favorable credit profiles.

On the other hand, these easy money loans can still save money for people like Steve. Even if the interest rate is higher, it is likely to be lower than the rate on a typical credit card. And since these people can pay off their no credit loans over time, they have a chance to build better credit, therefore, they can find more affordable easy money loans later on.

Repaying these easy loans is simply a matter of making regular payments. The amount of the payment will depend on a number of factors, including the amount borrowed, the length of the loan, and the interest rate. The loan agency will provide all of these details, making repayment fast and easy.

Financial Terms and Definitions

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