If financial constraints are the only thing standing in the way of your dream or an important, we may have the perfect solution for you. Below is everything you need to know about getting the right type of loan for your needs:
Why Get a Personal Loan?
There are some instances in life that can prove to be very tough on your budget. Those instances can include sudden medical emergencies or urgent home repair and can completely drain your entire savings.
Or there might be a once in a lifetime event or opportunity that you don’t want to miss at all cost, but don’t have the funding for it. Since banks will not ask for the purpose of the personal loan, you can use that loan to assist you financially or save you from a tight spot. Personal loans can help you with:
- Easing financial stress
- Converting several loans into a single one (called debt consolidation)
- Home renovations
- Buying household goods and furniture
- Buying a computer, laptop or other electronic equipment
- Going on an exotic vacation
- Supporting home loan repayments
- Help with school fees
- For the balloon payment on your lease
Five Advantages to Taking a Personal Loan
- If you choose to take an unsecured loan, you can bypass tangible collateral like mortgages and car loans.
- Repayment options are generally small and cover a relatively short period of time.
- Sometimes the interest rate is negotiable.
- Certain banks or financial institutions offer better interests on personal loans than on credit cards.
- It is possible to get a loan with a fixed interest rate repayments throughout the life of the loan.
7 Types of Personal Loans
Depending on your needs and financial situation, you can choose from a number of personal loan options. The most common types of personal loans are as follows:
1. Variable Personal Loan
Since variable personal loans levy adjustable interest rates, they are perfect for people who want to benefit from lower interest rates. The most considerable advantage of this type of loan is that it offers borrowers the possibility of making higher payments. The overpaying can lead to you paying back your debt earlier. This occurs because on some months the interest rate may be lower than others, hence making your monthly repayment higher than what it should be.
2. Fixed Personal Loan
The one risk that comes with variable personal loans is that the interest rate can rise, leading to higher monthly repayments. You can skirt this whole issue by choosing to get a fixed personal loan. Since it has a fixed interest rate, the repayments will remain constant for the entire term of the loan. Hence, this type of loan not only offers stability but can also simplify budgeting all because the monthly repayment amount stays unchanged. However, you will not be able to clear this loan as early as you would with a variable personal loan because you cannot make extra repayments towards your fixed loan.
3. Secured Loan
Loans are called ‘secured’ when the borrower offers some assets to be kept as collateral with the lender or financial institutions. Personal vehicles, personal real estate, a plot of land, investment accounts, savings account, and even jewelry and fine arts can be put up as security to borrow a certain amount of money. If the agreed repayments are not made, the lender will acquire the asset and can sell it to cover the cost of the loan. The advantages of getting a secured personal loan are that you can get a lower interest rate and borrow more money.
4. Unsecured Loan
Once you know what a secured loan means, it’s easy to understand what an unsecured loan is. Essentially, you will not be providing any asset as collateral for the amount you’ll be borrowing. However, if you want to apply for an unsecured loan, you’ll have to be able to prove that you have a regular income. The lender needs this evident to ensure that the borrower will indeed be able to repay the debt. However, you’ll probably get less than you would have you offered an asset.
Overdrafts, also known as a line of credit, are attached to checking accounts. If you’ve been approved for this type of add-on, the overdraft will help you in case you face an emergency and require urgent cash. It not only allows you to withdraw an amount, but it also protects you from missing payments. Interest payable on this type of loan is only on the amount borrowed.
6. Student Loan
If you are a student or a parent looking for a loan that will cover the course fees, living expenses, textbooks and laptop fees of your child, fear not! Many financial institutions in Australia offer student loans to help ease the financial burden of university goers. Instead of working part-time to earn minimum wage, you can sit back, focus on your studies and worry about your repayments once you’re done with your degree.
7. Debt Consolidation
Debt consolidation involves taking out a loan to repay and combine all other loans you already have. It is a type of refinancing that will not only simplify monthly repayments but also decrease the amount you have to pay thanks to the lower interest rate. Hence, debt consolidation can help you save money and reducing the loan term.
This post is Part 1 of a 2-part series. Part 2 can be found here.