Types of Personal Loans
Personal loans can be a good way of buying what you need today, then paying it off over the following years whilst enjoying use of the purchased item.
A personal loan is taken out for a certain amount of money over a certain period of time. For example you might borrow $10,000 over a five year period. Interest will also be applied to your loan, and you must repay the full balance as well as the interest within the loan term.
There are different types of personal loans available, and the type of loan that is right for you will generally depend on what you need the loan for.
Unsecured Personal Loan
Unsecured personal loans can be used for almost any worthwhile purpose, and are often used for the following:
- Debt Consolidation
- Furniture & Appliances
The reason this type of personal loan is called unsecured is because it is not secured by any particular asset. This means that the bank does not hold security over any of your assets.
When comparing unsecured personal loans it is important to consider the interest rate as well as the fees and charges payable.
Secured Personal Loan
A secured personal loan is commonly used to purchase a vehicle. As with other forms of personal loans they are generally available through banks and other financial intuitions, but in the case of secured car finance they are often available through car companies as well.
This type of personal loan is secured by the vehicle, which means the lender can take possession of your vehicle at any time if you default on the repayments.
Because the lender has the added security of being able to take possession of your car in order to clear your debt, this type of loan is generally considered to be a lower risk and as a result the lender may often charge a lower rate of interest.
Secured personal loans may not be available for all vehicles. Some lenders may only offer secured finance on new and later model vehicles.
Line of Credit
A line of credit is different to a standard personal loan, as it does not have a specified timeframe in which the loan must be repaid.
One way to think of a life of credit personal loan is that it is similar to a credit card, in that you can continue to draw money out of the loan provided that you maintain the repayments and do not exceed the credit limit.
Line of credit loans can often come about as a result of interest free offers from retailers. For example you may purchase furniture valued at $5,000 and place the full amount on finance. As you repay the loan, it will allow you to draw back on those funds if required.
Although they do have their place, line of credit loans can be trouble for some people as it allows them to stay in debt for a long period of time, unlike other types of personal loans which have specific end dates that they must be repaid by.
Choosing the Right Personal Loan
Getting the right personal loan is important, as the wrong loan could end up costing more in unnecessary fees and interest. If you are unsure of the right personal loan for your needs you should seek advice from a professional.
Search and compare a selection of Australian personal Loans on MoneyBuddy.com.au now.