Q:

What is a personal bank loan?

A:

Quick Answer

According to Business Dictionary, a personal loan is a loan for personal rather than business or commercial purposes. Types of personal loans include unsecured loans such as signature loans and credit cards as well as secured loans for homes or vehicles.

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What is a personal bank loan?
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Full Answer

A secured loan, according to Investopedia, gains its name from the fact that the lender secures the value of the loan with collateral. If a borrower defaults on a secured mortgage or vehicle loan, the lender can simply repossess the borrower's collateral, thus minimizing the lender's risk.

Unsecured loans, in contrast, are not backed by collateral. For this reason, reports Bankrate, unsecured loans long carried the name of "signature" or "character" loans. Historically, if a borrower was known to have a good character by his community, his local banker would gladly give him a loan for personal use. Rather than securing the loan with collateral, the lender secured it with the signature of the borrower.

Although still available, signature loans are not as common as they used to be, states Bankrate. Instead, when banks grant unsecured personal loans, they offer their borrowers credit cards. Unlike the other types of personal loans discussed above, credit cards are revolving debt. That means that the borrower can spend the loan, repay it and spend it again.

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