What are personal loans?
Personal loans are loans issued to those who need a source of funding to pursue their financial projects. They are issued by banks, credit unions or online lenders to borrowers. Common examples of personal loan use cases are house renovation, vacation, wedding organization or a business start-up. The loans can also be used to consolidate high interest credit card debt.
Personal Loans are Unsecured Loans
Personal loans are unsecured, where you do not need to offer a collateral such as a house or a car to back for the loan. The lender will assess your ability to pay by looking at your credit and employment history. If the borrower encounters late payment, their credit score will be rated poorly. Hence, it will be much more difficult for the borrowers to apply for the next loan.
Your credit is very important
Credit score determines your likelihood of receiving a loan, but it doesn’t stop there. It also decides what interest rate you can receive. Bear in mind that the lower the credit score, the higher the interest rates.
Personal loans are not revolving loans.
Personal loans are different from revolving loans such as credit card loans. Personal loans are one-time loan with fixed repayment period (usually 12 to 60 months). It usually has a fixed interest rate as well. You will receive a lump sum upfront and pay back the loan in monthly installments.
3 Things to consider when applying for Personal Loans
Several banks and non-financial institutions out there offer personal loans. To get the best option available, here are the three things you need to look out for when deciding on personal loans.
According to the law enacted by The Bank of Thailand (Page 2, 5.2.2), you will receive the loan amount not higher than 5 times of your income. If you are planning to borrow 500,000 Baht, you will need to prove that you are earning not less than 100,000 Baht per month.
2. Repayment Period
Personal loans have a fixed repayment period, usually up to 60 months. The period will depend on the program you are applying a loan for as well as the consideration of the financial institutions.
3. Interest Rates
The interest rate varies depending on the terms and conditions of each bank and also the credit score of the borrower. For unsecured loans, the banks usually give higher interest rates than the other secured loans, since the risk is higher. In the Thai financing market today, the interest rates ranged from 20-28%.
How to apply for low-interest rate personal loans
A way to get a low interest rate and approved quickly is to borrow from a peer to peer lending (P2P lending) platform. It is an online platform that matches the borrowers with investors. It’s a win-win situation for both sides. While borrowers get lower interest rates, investors receive higher return on their investment.
Peer to peer lending is a popular alternative for those who want to refinance their credit debts, since they will get much lower interest rates. In addition, an online platform eradicates long processes. It might take 2-4 weeks to get an approval by the bank, while it only takes 3 days to get your loan quote from PeerPower.
If you are looking to apply for personal loans, it is important to start planning early to get the best interest rates. PeerPower offers a tool #knowyourscore to view your score. In the next chapter, we’ll deep dive into credit score and how to improve your scores to make sure you get the best rate available!