Fixed vs. Variable Personal Loans
You've probably heard about variable rates and fixed rates when it comes to home loans, but these terms can also apply to personal loans. When you are looking for a personal loan, there are a few different types you can choose from, each personal loan will either be variable or fixed, and either unsecured or secured. So what are the differences?
Variable Rate Personal Loan
Variable rate personal loans are generally at a lower interest rate than an equivalent fixed rate personal loan. But the catch is these could always rise depending on the interest rates in the market, just like a variable rate home loan. On the other hand, if interest rates fall, so will your loan repayments.
Variable rate personal loans are a little more flexible when it comes to paying off the loan amount, there are usually no fees to make additional or early repayments. You can also usually redraw on this type of loan, if you have previously made extra repayments.
Fixed Rate Personal Loan
These are the best kind of personal loan if you are looking to stick to a budget, as the repayments will be fixed and thus never change. For the entire life of the loan your weekly repayments will always be the same so you can plan for expenses and budget accordingly. The interest rate rises and falls will have no effect on your loan, which is good if the interest rates were to rise, but if they were to fall in the future, you may find yourself regretting the decision to fix in the first place.
A disadvantage of a fixed rate personal loan is that you usually cannot make extra repayments or early repayments without fees and charges, so if you were to get a pyrise in the future and wanted to pay off your loan quicker, there will be extra costs associated with doing so.
What Can You Use Personal Loans For?
You can use personal loans for anything you wish, once you get the cash, it is yours to do what you want with it. You can use it to travel, pay for a wedding, get a new car, or do some renovating!
Alternatives To Personal Loans
Depending on what you need, there could be better options though. For example, if you were looking at buying a new car, usually banks offer specific personal loans for buying a car, these sometimes have lower interest rates than a regular personal loan.
You could also add on to your mortgage, if you have enough equity in your home. The interest rate if you were to do this would be a lot lower than a standard personal loan, this is the most common way homeowners fund renovations.
If you need cash, but you aren't sure how much, a personal loan is probably not the best idea, this is because you start making repayments and start being charged interest on the whole amount you borrow, on the first day you get the loan. It does not depend on how much of the loan you actually spend. In this case you would be better off getting different products such as a line of credit or a credit card.