A personal loan is basically an unsecured loan which is specifically given to meet the loan seeker’s personal financial needs. Repayment is usually through fixed amount installments over a fixed term. As in there is no restriction put on the loan seeker, so as to use the funds for a specific purpose only unlike other kinds of loans such as home loans or automobile loans etc., where such a loan is granted only for buying those specific things only.
There is a kind of flexibility while seeking the personal loan since one can use the amount as per his capacity and convenience. This kind of a loan could be used for attaining any purpose be it for; wedding, travelling, medical emergencies, to renovate homes etc., like for e.g. if a person seeks for a Home loan, then such a person can use the amount granted only to buy his first house, and such an amount cannot be used for attaining any personal purposes, but in case of personal loan the loan seeker could use the amount granted as personal loan for attaining or fulfilling any purpose be it buying a house or a car or even for buying groceries or paying bills or debt consolidation(where the borrower consolidate numerous debts into one i.e. where it is replaced by a single debt).
It is called as an unsecured loan because there is no need of keeping any collateral with the bank or the lending authorities. A collateral means things which are kept with the lender of the similar value of the amount asked by him as a surety where such collateral can be repossessed by a lender in case there is a failure in repayment of the loan amount. It is backed only by a promise to repay, that is the sole reason why it is called as an unsecured loan.
A personal loan is basically a loan sought by the borrower, with a mere promise to repay and such an amount could be used for fulfilling any personal need. It’s just that the interest rates for personal loan are comparatively higher than other kinds of loans. Rest everything depends upon the track record and the financial record of the borrower. Personal loan are tough to be sought due to the very valid reason that most of them are unsecured, it is just based on a signature of the person that is why it is also called as a signature loan.
Hence, it is always advisable to repay the loans before time, since it would help in achieving a better credit score thus paving ways for future credit ability.