When you have set specific goals but lack funds, a personal loan can be the answer to your woes. Lenders offer different types of personal loans that may fit any unique situation.
Whether you wish to take an international trip, buy a car, or pursue tertiary education, a loan can help you overcome the financial hump. But regardless of your loan type, you will incur charges, fees, and interest, so you must know the terms and conditions in detail.
This handy guide will help you understand every personal loan available and which might be right for you.
What are personal loans?
Personal loans are debt products that are availed from online lenders, credit unions, and banks. These are used for consolidating debts, financial emergencies, or home improvements.
You must pay instalments over a set period when you take a personal loan. The interest range may vary between 4 and 36 percent based on the selection of your loan product and credit worthiness.
What are the types of personal loans you can get?
You get a lot of options when choosing a personal loan, and it all depends on your financial situation. They are:
Secured loan
You must offer an asset like a house, car, or jewellery as security to get a secured personal loan. However, if you fall behind on loan repayments, the lender can seize the asset to compensate for the loan balance.
When you opt for a secured loan, you pay lower interest rates as the lender has fewer risks.
Unsecured loan
An unsecured loan does not need collateral for approval, so you don’t have to put any asset at stake. However, you must show evidence of your ability to repay the loan on time. Getting an unsecured loan may get even simpler if you have a guarantor.
It can be an excellent option if you have a good credit score. Also, interest rates for an unsecured loan are lower than that of credit cards.
A personal line of credit
A personal line of credit is a loaning option where you can access funds during unexpected emergencies. Also, you need to pay interest on the sum you use, not the maximum amount you can borrow.
This loan product has a high-interest rate but is extremely convenient for its easy access.
Debt consolidation
Debt consolidation enables you to combine different debts, like a car loan and credit card loan, into a single one, so you pay lower interest rates.
Consolidating debts can help you pay the loan at a competitive rate, and you can take care of just that one payment instead of several throughout the month.
Fixed and variable loans
You either get fixed or variable rates of interest on personal loans. In the case of a fixed loan, the interest rate is locked for the loan duration. While for a variable loan, the interest rate can go up or down throughout the loan term. Therefore, a fixed loan is suitable for bigger purchases as you have a structured way of repayments. But a variable loan could be an easy option if you’re borrowing a small amount and wish to pay it off quickly.
What should be the duration of your loan?
The loan duration depends entirely on your need and your financial situation. Usually, the standard term for a personal loan may be a minimum of 1 and a maximum of 10 years. However, you must know that you would be paying more interest for longer loan terms.
No matter what loan product you choose, the lender should be reputable and must offer you competitive interest rates. It is always best to go for a loan where the repayment amount is minimal, and you get flexibility. You can also look into a redraw facility where after paying a certain portion of your loan, you can draw money again to deal with critical matters at hand.
