Debt Solutions

Those of you who are short in cash today can have more options.  As banks compete for a bigger piece of the consumer credit pie, many financial institutions are now offering personal loans, with few or no questions asked. 

A personal loan is a credit facility offered to qualifying individuals who are in need of instant cash.  It's similar to housing or car loans, but the difference is that it's granted to individuals to finance personal needs, for which there aren't any specific types of loan available in the market. 

Normally, the interest rate element would have already been factored into the monthly repayment amount.  A personal loan is unlike an overdraft facility, which is a revolving credit facility.  A personal loan is a typical loan with a fixed repayment tenure and amount, which ensures that the loan is fully paid off by the end of the repayment period. 

Recently, the aggressive way in which financial institutions have been promoting their personal loan packages has helped made the product a niche credit facility for those in need of cash for almost anything. 

A personal loan can be utilized to fund any individual cash needs as it offers a means to own something immediately, that is, borrowing on future income or acting as a standby line to cover shortfalls without having to liquidate assets.  You can take up a personal loan for almost any reason including personal investment, travel, education, medical expenses, renovation, shopping and debt consolidation. 

However, as a matter of procedure, applicants are required to state for what the funds are needed.  This is to ensure that consumers choose the right product.  While financial institutions are in the business of lending money to consumers, it comes with social responsibility too.  If a customer who is already geared to the max in terms of debt applies for a personal loan to finance an expensive holiday, he will be advised on the possible danger of stretching his budget to the limit. 

Consumers should only turn to personal loans for fast cash after considering the monthly repayment amount and total cost of borrowing.  Banks offer different borrowing limits and loan tenures, depending on the type of personal loan being offered. 

Basically, there are two types of personal loan available; the unsecured loan or 'clean loan' which doesn't require any collateral and guarantors while secured loans are given to individuals based on collateral and/or guarantors.  However, banking insiders say individuals usually prefer the unsecured personal loan due to its hassle-free nature. 

Most personal loan packages boast of 'very low monthly repayments' in their advertisements and campaigns but stop short of disclosing the actual interest levied until an official loan application is submitted to the bank.  This is happens as the interest charges for personal loans are not based on the 'one rate fits all' concept. 

If someone is eligible for a personal loan but appears to also have several credit commitments, a different rate may apply, depending on how much risk the bank is taking by lending money to him; financial institutions go on a case by case basis. 

Hence, a wise consumer should evaluate each credit need carefully, be it personal or even business as a wrong move to take on more debts than what one can afford to repay will mean trouble in the long run. 

A good solution is, always borrow within your means, service the loan repayments faithfully and settle the loan on time, if not earlier.  Bear in mind that a personal loan is not meant to supplement your income.