Of course, as with all financial decisions, you should take some time to assess your personal situation and work out whether a personal loan is the best option for you. These loans can be a great choice in a number of situations, but at other times you may wish to consider a different route.
In this article, we’ll show you what personal loans are, how they work, and some of the most common reasons to consider getting one.
What are Personal Loans?
Personal loans allow you to borrow money and pay back a certain amount each month, plus interest. There are some different types of personal loans, and it’s important to understand these differences before you start applying.
Unsecured Vs Secured Personal Loans
When a personal loan is secured, it means there is collateral taken against the loan. This is usually an expensive asset you own such as a house or car. If you default on loan payments you could lose your collateral. This method often allows you to borrow much more, but the risks are of course higher.
An unsecured personal loan, on the other hand, is not secured against any collateral. You’ll probably be limited to borrowing less money, but there is also less at stake.
Personal Loans Vs Credit Card Loans
Personal loans are often compared to credit card loans, as they’re both common methods of borrowing money fairly quickly for a variety of reasons. However, there are some key differences.
Compared to a credit card loan, personal loans may allow you to borrow more and have lower interest rates. However credit cards can offer more benefits like rewards, grace periods, and credit limit increases over time.
Fixed-rate Vs Variable Rate Personal Loans
Fixed-rate personal loans guarantee you the same interest rate for the full duration of the loan, while with variable rate loans this changes over time.
The advantages of a fixed-rate loan are much more certainty and the ability to plan your finances with more reliability. You can simply set a recurring monthly repayment and not have to worry about it changing. However, fees may apply if you want to repay your loan earlier than originally agreed, and you won’t benefit from decreased interest rates.
A variable-rate personal loan is much less predictable and stable. You run the risk of interest rates increasing and paying more than you originally planned, and it can be hard to plan a budget with this uncertainty. However, variable rate loans often come with some benefits like the ability to make extra repayments and repay early.
It’s important to understand the different types of personal loans before you make any decision. It often makes sense to discuss this with a broker so you know exactly what you’re getting into and what option is best for you.
Sometimes banks will offer a lower interest rate for larger loans or refuse to issue a loan for less than a certain amount. This can be tempting, but it’s important to think carefully before borrowing more money than you need.
Why Should You Get a Personal Loan?
- Fund a large purchase. Many things in life are expensive, and some things are so expensive that we simply don’t have enough cash on hand to pay for them. This can include things like a wedding, funeral, or moving house. A loan can help cover these costs in a more manageable way.
- Consolidate existing debts (such as credit card debt). When you have a number of different debts in different places, it can be useful to consolidate them. This involves taking out a single personal loan to repay all your debts. From there on, all your repayments will essentially happen in the same place, often with more favourable terms.
- Cover a gap in income. Sometimes we may encounter a week or two when we have no income, perhaps during a small gap between jobs. At these times a personal loan can help us make ends meet until the money starts coming in again.
- Emergency costs or repairs. Life can be unpredictable, and it’s hard to know when your car is going to break down or your roof is going to need work. These jobs are urgent and often expensive, and a loan can help cover the costs more easily.
How We Can Help
At Lynam Home Loans, we help people find personal loans in Mackay that fit their needs and circumstances. We’ll guide you through this often confusing process with our extensive knowledge and experience so you avoid any mistakes or traps and get the best deal for you.
We can even help you access a personal loan if you have unusual circumstances such as a non-traditional employment pattern. To find out more, contact us.