The amount of money you borrow from any organization or even a person is called a personal loan. You may need money to pay a debt or be worried about home renovation or any other necessity for which you require money. Many loan paying agencies even banks offers money for the personal loan. However, the money you will borrow must be returned by you with interest. Before applying you must know the personal loan format. Some lenders will charge extra fees or personal loans. There are many aspects of personal loans;
- You can cover your expenses using personal loans.
- Many banks, unions of credit, and money lenders offer personal loans.
- Personal loans either taken from anyone can have a variety in interest rates and repayment terms and policies.
A personal loan is very beneficial; therefore, you will need to know all about the personal loan format. The personal loan format is complicated, but we will make it easy to deal with it. But first, you need to know all about the personal loan.
What is a Personal Loan?
A personal loan is not a big theory understanding it is going to be quite easy for you. A personal loan is taken for personal expenses. You might use the personal loan for paying;
- Debt Consolidation
- Medical Bills
- Funeral Costs
- Wedding Expenses
- Home Renovation
- Vacation costs
- Unexpected Expenses
- Repairing costs
- Moving Expenses
Personal loans are different from other loans, loans, mortgages loans, and other car loans or credit loans. In a personal loan, you have to return the loan on fix date. However, a good understanding with the lender can prolong your loan credit.
Is a Personal Loan Secure or Not?
A personal loan can be secure or unsecured. The banks, credit unions, or even money lenders offer both types of loans, either secure or unsecured, to well-trusted borrowers. If you are not a trusted one, or loan without collateral will require a higher interest rate. Loans like that must be avoided because Lenders will charge higher rates, as the APR (Annual Percentage Rate) can gradually go over 200%. Make sure you will go for a secure loan that will be easy for you to deal with it.
How to Apply for a Personal Loan
To get a personal loan, you will have to apply to the lender. You can apply to a bank or any other credit union which suits you. After writing an application, you will wait for the lender if he approves your application. If your application is approved, then the final process is the paperwork.
Then the lender will pay the amount of the loan to the borrower. The lender can pay the amount through bank account transfer or check. Now you can use the money, and now you will have to begin the repayment process according to the terms and policies.
Without a good loan proposal, you can’t get loan approval from the lender. A good proposal includes how you present yourself, how well you describe your business, and what are your financial needs for the loan. However, before beginning to write a proposal, keep these facts in mind;
- How much money do you need?
- How will your business grow with this money?
- What is plan b to repay the loan if your first plan fails?
- How will you repay the loan?
How to Write a Good Loan Proposal?
As the loan proposal is the basic thing in the personal loan format. Therefore, to write a good proposal focus on these aspects;
- The proposal must start with a cover letter to describe yourself, then about business, the start-up of a business, and how your loan will help the business.
- Then you will have to describe the current circumstances it means you will tell the current condition of your business. Your market value, your customers, and everything related.
- Now tell your business experience and your skills and tell about the key members of your team.
- After all that, you can now tell how much money you need but use specific quotes and other achievements and shortly describe why you need money? Make sure to tell that how you will use the loan.
- Now tell the repayment criteria how you will return the money. What will be the schedule and your plan? This depends mostly on the lender’s policy of loan.
- Then decide whether you need a secure loan or an unsecured loan; in the case of a secure loan, there is no collateral; the however unsecured loan is back by the collateral.
- Decently finish the proposal and then wait for the lender’s response whether the proposal seems satisfying to the lender or not. Mostly lender goes for negotiation and then decides whether to give a loan or not.
The loan agreement is used by the lender and the borrower to decide the loan terms and policies. The entire repayment schedule is written on the loan agreement. Other than that, a good loan agreement must be;
- Highly Detailed
- Simple Note
- Signed by both parties
The other thing to remember about loan agreements is that loan trust is not written for trust issues. This agreement acts as a license for giving the loan. So, make sure if you handing the loan to anybody in friends and family never compromise on the loan agreement.
Example of a Personal Loan
The annual Percentage Rate of a loan is the annual amount you will return based on fees and the interest rate. Along with a personal loan, the ARP decides what will be the interest you will pay on the loan on annual terms.
For Example, imagine that you have got $10,000 as a personal loan with 7.5% of ARP. The repayment term of the loan is 24 months. Using those terms, the monthly payment will be $450, and the total of all the interest that you are going to pay on loan will be $799.90.
Now, what if the amount of personal loan is the same, but the terms are different. Instead of a two-year plan, the agreement is for three years, and ARP is 6%. Using those terms, your monthly payment reduces to $304, but on the whole, your interest rate is going to increase to $951.90.
Where to Find Personal Loans
There is different type of places that offers the personal loan. Some of these institutes are;
Banks offer personal loans with average interest. The loan can be secure or unsecured. The famous banks are SBA banks and USA banks.
SBA banks significantly reduce the risks of money lenders by enabling 85% of major portion loans to small businesses. SBA also offers financial statements to all the owners with a 20 percent or greater interest rate in any business.
USA banks have fixed ARP on personal loans. If you borrow $1,000 to $50,000 with an annual percentage rate (APR) that ranges from 6.49% to 16.99% APR1 if approved the overall cost that you will borrow (annual percentage rate) will be 70.65%.
Credit Unions are yet another safe platform for personal loans. They usually offer both secure and unsecured loans. For Example, a famous credit union is a security first. The best thing about security first credit union is that it offers unsecured loans up to 60 months with an ARP of 9.85% to 17.49%.
The last option to take personal loans is money lenders. These money lenders offer both types of loans, either secure or unsecured. But they sometimes offer high interest rates; therefore, be aware while taking loans from money lenders. Avoid loan sharks.
Personal Loan Format: FAQs
What Is a Loan Agreement?
The loan agreement is a written agreement between the borrower and the lender. The loan agreement includes many terms and policies. The schedule of repayment of the loan is also mentioned on it. Loan agreements play a vital role in securing the loan.
Who Needs a Loan Agreement?
The loan agreement is very useful for both parties. The loan agreement is not written upon the trust issue—the agreement acts as a license for getting the loan. Therefore never compromise on the loan agreement, even on friends and family loans. Both parties need to understand its importance.
How can I get personal loans for bad credit?
You can get personal loans on bad credit. Many money lenders offer loans without taking notice of bad credit. But, if you go for a secure loan with collateral to back you, you will face no problem getting personal loans on bad credit.
The personal loan format was not so complex, although it still needs your attention. Collective the information of banks, credit unions, and secure money lenders if you want to have a loan. Then write a good proposal of loan and submit it to the lender. Never compromise on loan agreement; you need to write a loan agreement based on real terms that you will follow. Make sure both parties sign the agreement. You can have both secure and unsecured loans; it is upon you. Follow the guidelines and get the desired loan to solve your complications and to run a successful business.
I am Lavinia by name and a financial expert with a degree in finance from the University of Chicago. In my blog, I help people to educate by making wise choices regarding personal investment, basic banking, credit and debit card, business education, real estate, insurance, expenditures, etc.