Why is this type of loan known as "personal loans"?

The reason this type of loan is called "personal" is because someone who takes one out is likely to need the money for personal reasons. A loan in order to finance the buying of a home is a mortgage. A loan created to help expand a business is a business loan.

Whilst a mortgage isn't a personal loan, if you are simply making improvements to your home, that can be said to be personal. You can take out a loan secured on your home, sometimes with your mortgage provider. Should you default on the loan, they can get your home, and yet the home improvements will probably have increased the value of the property. You should understand that if you do take out a secured loan, you are taking a risk on your property, so you should ensure that you can make the repayments.

Then there is the option of buying a car. You can get a personal loan for amounts between £5000 and £25000. This is the most appropriate size for a car purchase. You'll find that one of the most convenient ways to do this is through 'car finance', offered by the dealer who sells you the car. Be careful with this. It's really another type of personal loan. But, is the finance offered by the dealer a good deal? They might not offer you the best rates, and may hope that the convenience for you of arranging a loan at the same time will be a sufficient quid pro quo for you. If it is, then that's up to you.

You can also restructure all of your other debts in to one single payment using what is known as a debt consolidation loan. You may have a few credit card debts, and maybe one or two personal loans as well. You can get the repayments for these "restructured" into a smaller payment per month in total over a longer period than normal, which is how they make the payments smaller. The loan is normally large enough to cover the debts you want to consolidate. However, it is not unusual for people to take out a consolidation loan that adds up to more than the amount they wish to pay off. This is in order to get access to a particular lump sum in order to fund home improvements or maybe a car. These are secured so make sure you can afford the payments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

© AskFinancially.com 2008

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