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Lump sums and credit lines
 Personal
loans are unsecured loans that come in either a lump sum or a revolving
line of credit.
Lump sums, also called closed-end loans,
usually carry a fixed interest rate, while lines of credit carry
an adjustable rate. A line of credit may cost more than a closed-end
loan because it moves with fluctuating interest rates.
The term of a closed-end loan depends
on your credit standing -- the better your credit, the longer the
bank will give you -- and how much you borrow. The shorter the term,
the less the loan is going to cost.
For example, if you borrow $10,000 at
15 percent interest and pay it back in 48 months, you will pay $278.31
a month, or $13,358.88. If you pay it back in 60 months, your monthly
payments are less -- $237.90 -- but you will pay a total of $14,274.
(For loan repayment calculations go to the bankrate.com loan
calculator.
Line of credit unsecured loans work a
little like a credit card with a time limit. A bank may approve
you to borrow $10,000 for three years. Your credit revolves as you
pay it off -- borrow $2,000 and pay it off and you can still borrow
$10,000. If it's not paid off you can only borrow $8,000. Either
way, you must pay off everything when the three-year time limit
comes up.
To pay back lump sums, banks usually
issue coupon books. Lines of credit often come with checks so you
can withdraw different amounts. Keep in mind that automatic payments
deducted from a checking or savings account might cut your interest.
How much can you expect to haul away
from the bank on your own recognizance? The amount you can borrow
unsecured can vary from $1,000 to about $35,000. Bankers -- you
understand bankers, don't you? -- can get antsy about loaning large
amounts to the average customer without collateral.
-- Updated: March 19, 2004
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