Three Kinds of Personal Loans, One Might Just Be Right for You

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Three Kinds of Personal Loans, One Might Just Be Right for You
By Pat Caymus

Let us face it-some of us have lost sleep over mounting bills, high-priced commodities, and tuition increases. You wonder when things will be okay and money would not be as tight.

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Sure, you would like to face your retirement years knowing you need not work because there is enough money saved in the bank. But how can that happen? What will make it happen aside from a lotto jackpot?

For some, managing their finances for long-term achievement might be the best solution. But what about the imminent problems that need immediate solutions?

If you need an extra cash just to cover up the instant money problems, it is best that you take advantage of the personal loans.

Personal loans are loans established on a borrower's debt, credit, and earning history. In most cases, personal loans are for personal use, hence, the term "personal loans."

Any person can avail of a personal loan without having to worry of collaterals. Hence, it is considered as one type of unsecured loans.

Generally, people who need spot cash for a new washing machine, for instance, would most likely opt for personal loans.

In earlier times, banks are the only financial institution that provides personal loans. With the growing demand for this kind of service, additional businesses, such as the supermarkets, department stores, etc., have decided to offer personal loans.

According to some statistical reports, approximately 22.1% of the "non-mortgage installment loans" are covered by personal loans. That is already a great portion in the market, considering the stiff competition within the lending industry.

Which Is Best for You?

There are three types of personal loans to choose from. Each type has its own pros and cons, with remarkable features that will fit the consumer's needs.

It is best that you evaluate each type of personal loan before making a decision. Take a look at the basic description on each type of personal loans, and surely, you will find one that might just be right for you.

1. Balloon loan

A balloon loan is one kind of personal loan that lies on a long-term payment basis. Upon maturity, the borrower has to pay one big fee, known as the "balloon payment."

The main point here is that the payment of the loan is "deferred" or postponed at a later date, thereby, giving the borrower the chance to save up for the finale.

In essence, balloon loans are ideal for those who have discipline in managing their finances. Since the payments are deferred until maturity, chances are, borrowers may neglect the chance of saving for the balloon payment and end up paying more than what was needed.

2. Installment loan

This type of loan is usually paid in partial amount, otherwise known as installments.

In most cases, institutions that provide this kind of personal loans are furniture shops or department stores where they offer their products on installment basis.

This type of personal loan is ideal for those who cannot afford to buy high-priced products on single disbursement.

Normally, installment loans are arranged on a fixed and determined phase. Hence, the borrower can allocate his resources based on the kind of installments his personal loan has.

3. Single payment loan This type of personal loan is similar to that of balloon loan since the loan payment is also deferred. The only difference is that, instead of paying portions of the loan with the bigger fee upon maturity, the whole loan is payable by the time the loan has matured.

Like balloon payment, single payment loan requires discipline enabling the borrower pay the whole loan upon maturity.

Given those facts, each type of personal loans may vary noticeably based on the kind of payment options available.

Hence, it is best that before deciding on the type of personal loan that you think will work best on you, it is imperative that you check on your finances first, know where you are financially, and determine your financial life phase.

In this way, you will be able to create a feasible time line for your personal loan, enabling you to pay off your debts as stipulated on the mode of payment for your personal loan.

Pat Caymus writes about financial related topics such as Military Personal Loans and other consumer related financial topics designed to inform people about personal loans and many other kinds of loans.

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