Is A Personal Loan Right For You?

Tuesday, August 1st, 2017

When you need money to purchase something important, your first obvious step is to apply for finance. But with so many types of loans on offer, choosing the one that suits your circumstances can seem confusing.

For many people, a personal loan is the best option. If you’re unsure of whether a personal loan is right for you, read these tips to understand how they can help.

 

What is a personal loan?

Think of it as a form of credit that can be used for a specific purpose.

This could include:

Basically, you borrow a specific amount from a lender that suits your circumstances and then pay off that loan by making regular repayments at prescribed intervals (weekly/fortnightly/monthly).

 

How Long Is A Personal Loan For?

Your loan period may differ, depending on your lender. Expect somewhere between one year- seven years.

It’s important to talk to an experienced finance broker to assess what loan type is best for you because, although it might seem handy, the fact is that a personal loan is less flexible than some other credit options. As well as requiring you to repay the debt on a fixed schedule, a personal loan does not usually offer additional benefits, such as warranties and purchase protection, rewards and travel benefits in the way a credit card could. Of course, the benefit to you is that the interest rate is much lower.

 

How to Be Loan-Ready

Before you apply for a personal loan or any finance, it’s important to be loan-ready.

Check your credit score and make sure that there are no errors in your credit file that could prevent your application from being approved.

It’s important to read all the fine print on your loan contract too –  be sure you understand the full cost of your loan, including associated fees, balloon payments, and interest rates.

 

Variable personal loan

A variable personal loan charges an interest rate that is subject to fluctuations beyond your control. That means your repayments may change during the life of your loan.

Many variable personal loans do offer the opportunity to make extra repayments to repay it early but do check your contract to be sure.

 

Fixed personal loan

A fixed personal loan charges a fixed interest rate – and that is ideal for some people who prefer to budget based on exact figures that won’t change over the life of the loan.

Fixed personal loans are more stable but most do not allow the chance to make extra repayments so think carefully about what type of loan really suits your finances – and your goals.

 

Secured personal loan

To access a secured personal loan, you must put up an asset as security. Your security could be a vehicle, boat, jewellery, art, or business equipment.

Be aware that if you then default on your repayments, your possessions are at risk.

This makes a secured personal loan less risky for the lending institution offering it, so the benefit to you can be lower interest rates – but do think about your realistic situation and your ability to meet your repayments before committing.

No matter what type of loan turns out to be the best one for your circumstances, it’s always important to take any finance application seriously – the consequences of making mistakes can stay on your record for several years.

If you have any questions about your finances, either personal or business, please do not hesitate to contact Loans Actually on (03) 8805-1850 or email glenn@loansactually.com.au


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