A personal loan gives you the opportunity to access money and use it for whatever reason you choose. Since they are multi-purpose loans, they can be used for the payment of vacations, medical bills, car purchases and more. It’s not very difficult to get a personal loan. The documentation required is minimal and the delivery of the loan amount is very quick. Some creditors give you the money within 24 hours of loan approval, so you can bank on a personal loan if you don’t have the money to pay for emergencies.
Since they come with so many benefits, they undoubtedly have a few strings attached. Interest on personal loans is generally higher because there’s no security attached to the loan. Moreover, many lending institutions ask you to make repayments for the entire duration of the loan term. Since the first few instalments go only towards the payment of interest, the total amount of money you spend will be much more than the amount you borrowed. If the lender allows you to make payments as you go, you may be charged a certain penalty in some instances. So it’s important to make these calculations before applying for a personal loan. Borrowers who have a poor credit history also receive tighter repayment clauses in the contract.
Even if your instalments look very affordable, you have to take the tenure of the loan into account to determine how much money you’ll end up spending in the long run. The term of the loan can be anything from 12 months to 1 year. The interest you pay on the loan, also known as Annual Percentage Rate is either fixed or variable. If you’ve locked in a fixed rate of interest for a fixed term you may not be eligible for early repayment.
If you choose a fixed rate of interest you may end up paying more than the variable rate if the interest rate plummets. If the variable rate rises, on the other hand, you will stand to benefit from being locked in a lower fixed rate of interest.
There are two types of personal loans offered by lending institutions, namely secured and unsecured personal loans. Secured personal loans are secured by a car, a home or any other asset. They come with a lower interest rate. If you fail to repay the loan amount, however, your asset will be repossessed and sold by the bank and the money will be taken back. An unsecured loan is not secured by any asset and therefore has a higher interest rate.
Find out if there are any loan application fees, hidden fees, administrative fees or penalties before you accept a loan offer. Also, calculate how much interest you’ll have to pay for the entire life of the loan. Compare personal loans online to find out which one offers you the best interest rate and flexible payment options.
Lastly, go over the terms and conditions of the contract you receive. Ask questions if you can’t understand the clauses to make sure you choose wisely.
For more information on personal insolvency, check out our personal insolvency page here.