A personal loan is when you borrow a certain amount of money from a financial provider and repay the money you borrow within a specific time, usually 1 to 5 years. You also pay interest and any fees on top of the amount you borrow. You can use a personal loan for a variety of things that you would normally not be able to afford like a holiday, renovations or a new car.
Types of personal loans:
– Secured Personal Loan
A secured personal loan will require you to put up an asset to secure against the loan, usually a vehicle. The lender uses this asset as assurance that they will get their money back if the loan isn’t repaid. A secured personal loan is considered a low risk to the lender, which means they can offer a lower interest rate and usually a higher loan amount.
– Unsecured Personal Loan
An unsecured loan means that you don’t have to put up any assets as security. Unsecured personal loans are usually considered a higher risk to lenders which means the loan amount is usually lower and the interest rates higher. The lenders eligibility criteria are usually stricter but the application process is simpler than a secured loan.
– Debt Consolidation Loan
A debt consolidation loan allows you to combine all of your different loans into one loan. This will make your repayments more manageable rather than having to pay multiple loan accounts. You will also be less likely to make late payments which will keep your credit file healthy.
Fees and costs involved with Personal Loans:
– Application/establishment fee: There may be a once off application or establishment fee if your loan is approved. This is usually added on to the loan.
– Monthly fees: Some lenders have a monthly account keeping fee so always find out if there are any ongoing fees before applying for a loan.
– Early exit fees: Some lenders have an early repayment fee if you decide to pay out your loan early. There also may be added costs for making extra repayments on top of your normal payments.
– Interest rates: lenders will give you an interest rate based on your risk. They will take into account residential and employment stability, income, banking conduct and credit history. Individuals that are considered a high risk will be given a higher interest rate.
Related Article: Things to Consider Before Getting a Personal Loan
Where you can get a personal loan:
There are lots of banks, credit unions, online lenders and peer-to-peer lenders out there that offer personal loans. Most lenders these days will allow you to get an estimated rate without impacting on your credit score. Keep in mind, applying for multiple loans will affect your credit file and your chances of being approved so always do your research or see a financial advisor before applying for a loan.
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