Applying For a Loan

Personal loans are made by banks and other institutions, to individuals only, not corporate entities, and usually without pledging any security. Most personal loans are secured only by your signature on a promissory note to repay. By contrast, some loans are secured by collateral, meaning if you default on the loan, you give the lender the right to take back the collateral that you pledged. Below, we will elaborate a bit more on the differences between secured and unsecured loans, as well as their qualification and repayment requirements.

What is a Personal Loan?

When you take out a personal loan, you borrow an amount of money for a certain period of time and pay interest on the outstanding principal balance. Generally, they are unsecured, which means there is no collateral. They are often acquired to make a specific purchase or to consolidate other high interest loans into one monthly payment. Most are obtained from a bank or a credit union.

A line of credit is a common alternative to an installment loan. Upon approval, the lender establishes a maximum amount that you may borrow (your credit limit). You may borrow what you need, as you need it, in any amount, as long as your outstanding principal balance does not exceed your limit.
As you pay down the balance, you can borrow more, up to your limit. Personal lines of credit are often unsecured, but some are secured by collateral, such as your home's equity.

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