Personal Loans

Monday, October 10, 2005

Personal and Payday Loans - Duration and Amount

When looking for a source of monetary funding, some of the first things a consumer might ask about a personal or payday loan are questions about loan duration and borrowing size.

Personal loans are commonly used by borrowers in order to finance large purchases such as an auto, boat, or college tuition, but also to pay off debts such as unpaid credit card balances. Typical personal loan amounts range from $2000 to $50,000 dollars.

Generally speaking, the greater the amount of a personal loan, the lower the interest rate, and vice versa. It wouldn't be uncommon to expect interest rates of up to 20% APR for smaller size personal loans (example $2000 dollars). For personal loans of a larger size, say $25,000 dollars and up, to be paid back over 5 years or more, interest rates might be a lot more affordable, even as low as 6 percent. One of the reasons for such high interest rates are the administration costs associated with loan arrangement.

In most cases, personal loans are paid back on a biweekly or monthly payment schedule, with payments being made every 2 to 4 weeks. The loan duration ranges from approximately 1 to 5 years, but even longer in certain cases. Payments are required to be made on time and in full, in order to maintain a good credit rating for the borrower. Sometimes a borrower can repay their debt early, before the scheduled end of the loan period, although early repayment charges may apply.

Payday loans on the other hand, are typically very short term in nature. As the name suggests, these loans are designed to serve as a cash advance until the borrower's next payday. A normal duration for this type of loan debt is about 2 weeks, although sometimes a cash advance can be extended.

Payday loans generally require a fee that is proportional to the amount of money being borrowed. For instance, a lender might charge someone $25 for every $100 that the person wants to borrow. This means that a $300 dollar payday loan would cost a total of $375 for the borrower.

Factors which affect the interest rate and borrower's eligibility for these types of loans are a person's credit rating, whether or not the loan is secured or unsecured, employment status, and proof of income. A borrower can apply for both types of loans either online via the internet, or in person at a lending institution.