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Personal Loan
The personal loan is any loan made by a lending institution to a private individual. There are many reasons why an individual might require the financial assistance of the personal loan. The terms and conditions of the personal loan are contingent upon a number of factors related to the lending institution and the borrower. Repayment of the personal loan should always be completed in full and on time in order to maintain the good credit necessary to get another quality personal loan in the future.
Personal loan motivation
In today?s society is frequently common for individuals to need to the assistance of the personal loan to acquire needed or desired items. The personal loan may be used to finance nearly anything. The most common uses for the personal loan are:
? Automobile purchasing and refinancing
? College education and associated costs
? Home buying and refinancing
? Maintenance of daily life
? Medical expenses
? Travel expenses
Personal loan types
There are many different types of personal loan options based on such factors as:
? Amount of personal loan required
? Borrower credit
? Borrower income
? Purpose of personal loan
? Who the lender is
The interest rate on the personal loan will vary according to these same characteristics. A low interest rate is usually sought after by the borrower while a high interest rate benefits the lender of the personal loan. A balance can be struck by negotiating a middle ground interest rate for the personal loan. A history of good credit and steady employment are assets to the borrower in negotiating a better personal loan rate.
What is good credit
The personal loan is based in large part on the personal credit of the borrower. The credit of the borrower is assessed using a credit report or credit score. Information which is provided by the credit report includes:
? Any bankruptcy or home foreclosure
? Employment history and current employer
? History of loan applications
? Income
? On-time (or late) payments
? Outstanding available credit
? Outstanding debt
Good credit is when you have a solid history of on time payments with a low outstanding balance and a strong employment history. Good credit is valued by the personal loan lender because it is an indicator that you are likely to repay the personal loan in a timely manner and according to all of the terms of the personal loan agreement.
Repayment of the personal loan
The exact details of the personal loan repayment will be determined by the lender. Usually, the interest rate is multiplied by the outstanding balance of the personal loan to create a minimum monthly payment due on the personal loan. The personal loan will continue to be paid, with interest, until payment has been completed. Repayment of the personal loan will increase credit history and make a future personal loan more accessible.
Interest Only Loan
The interest only loan differs from the standard loan or mortgage in that extra payments will decrease the monthly amount paid as well as the lifetime of the loan. With a standard mortgage, added payments decrease the life of the loan but the monthly payments remain the same. The interest only loan is a benefit to people who do not currently have the money to make large monthly payments but may be able to make sporadic large monthly payments.
Monthly payments on the interest only loan
The basic difference between the interest only loan and the standard home loan is the manner in which the monthly payments are calculated. When you accept a standard home mortgage, you agree to pay a certain amount each month until the loan is paid off. For example, you will pay five hundred dollars every month for your mortgage and that will not change until the very last payment when the entire mortgage has been repaid.
With the interest only loan, you are paying an interest percent which is calculated each month based on what is still owed on the loan. Let?s say that you pay ten percent in interest each month. The first month, you will pay ten percent of the total loan. The second month, you will pay ten percent of the amount which is the total loan minus the ten percent already paid. This means that any time you are able to make extra payments, over the interest only payment, on your loan, you will decrease the loan amount owed each month.
The interest rate
One drawback to the interest only loan is that the interest only loan often has a higher interest rate than the standard home loan. The interest only loan is a slightly riskier investment to lenders. Studies show that likelihood of failure to repay the interest only loan on time and in full is higher than that of the standard home loan. This increased risk makes lenders inclined to increase the interest rate on the interest only loan to make up for money that may be lost.
It should also be noted that the interest rate on the interest only loan might be subject to change. You should read the terms and agreements of the interest only loan carefully. The low interest rate offered by the interest only loan that seems too good to be true probably is and you should find that out by reading the fine print and asking questions of your lending institution before making any agreements to accept the interest only loan.
Length of the interest only loan
The interest only loan is a home loan and therefore the life of the loan is usually long ? fifteen to twenty years. However, the period of interest only repayment is usually only five years. The length of the loan and the details of the interest only period of the loan should also be discussed with the lending institution.
An interesting note
The interest only loan is not actually a loan. The interest only loan is an option which can be added on to a standard home loan by working with the lending institution. The interest only loan is not a loan in and of itself even though it is called a loan.
Home Improvement Loan
The home improvement loan is commonly used to access the cash necessary to make additions or renovations to the private home. The home improvement loan is a loan made by a private lending institution, although it may be accessed through a federal loan program. The home improvement loan is a short-term low with an interest rate dependent upon the lending institution and the personal credit of the borrower as well information about the home mortgage and home value. The home improvement loan increases the real estate value of the home, effectively using the home itself to create profit from the home.
The purpose of the home improvement loan
The home improvement loan is designed for exactly that ? to make improvements to the home. This can mean a wide range of things. Some examples of projects completed with the money obtained from a home improvement loan include:
? Adding or enlarging a room
? Building a deck
? Enclosing a patio
? Funding a swimming pool
? General repairs
? Repainting and redecorating
? Updating plumbing
Acquiring a home improvement loan
The home improvement loan is usually made by a private lending institution although there are federally funded programs for the home improvement loan which can also be explored. It is often best to speak with a customer service representative from the lending institution which financed the home mortgage since that person should be familiar with the details of the home financing situation.
The home financing situation
The interest rate, total loan amount and length of loan life are going to be dependent upon the lending institution and the current real estate market. They will also depend upon the details of the first mortgage, the exact purpose of the home improvement loan, borrower credit history and the value of the home. In general, the home improvement loan is a short-term loan which requires only interest-only payments during the period of home construction. The interest rates are usually lower than those of a private loan such as a line of credit but vary according to all of the above factors.
Using the home to profit from the home
The home improvement loan uses the home as equity for financing of the loan. With proper repayment of the home improvement loan, it is actually possible to profit off of the loan. This works when the value of the home improvement in terms of the rental or real estate market brings in more money than the total cost of the loan to the borrower. Because real estate market values frequently rise, this is often the case with a good home improvement loan.
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