Are you after a new car? Want to consolidate your debt? Or want to make some home improvements? Then a personal loan might be the right loan option for you. Personal loans are a type of consumer loan that can be used for a variety of personal needs, thus the name.
So, what exactly is a personal loan?
A personal loan allows you to borrow a specific amount of money to cover the cost of a big ticket expense, such as a wedding, a home renovation, or anything else that you may need. However, you will need to pay back the loan amount over an agreed term and interest rate. Personal loans are an easy way to pay for some of life’s big expenses, just make sure to check with your lender what you can and can’t take one out for.
Unsecured & Secured Loans
An unsecured personal loan means that you have to provide any security for your loan, where the lender is unable to take any collateral from you if you’re unable to service the loan. However, this brings on greater risk for the lender, which usually brings on a higher interest rate to you, the borrower. It also offers more flexibility and an easier application process as you generally aren’t required to provide details of the asset you’re using as security.
A secured personal loan is guaranteed by an asset, where the lender will use this asset as security. This means that if you’re unable to service the loan, the lender can take possession of the asset and sell it to cover the cost of the loan. However, as a borrower, this form of a personal loan brings upon lower interest rates.
How do I know what personal loan is right for me?
Compare, compare, and compare again. The best way to find the right personal loan for you is to compare all of your loan options. The first thing to look at is interest rates.
Interest rates are the amount of interest you’ll pay on the balance of the loan each year. Interest rates will vary based on the lender or bank, whether the loan is secured or unsecured, and your own personal circumstances.
Interest rates can be either fixed or variable. If the personal loan has a fixed interest rate, your repayments will stay the same for the entire loan term, giving you stability but you won’t be able to make additional payments. Whereas, if the personal loan has a variable interest rate, your repayments can change, giving you the ability to make additional payments to repay the loan early (subject to any extra fees of course).
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