Your quick guide to choosing a personal loan
You need cash and you need it fast right? A personal loan is a tried and trusted way to finance a big purchase, like a car, holiday, home improvements, TV or computer. Personal loans are also often used to consolidate and pay off other debts, like credit cards and store cards. But which personal loan is right for you?
What are the different types of personal loan?
There are a few different types of personal loan. You need to choose the right type of loan for you. That depends on what you are using the loan for.
1) Unsecured personal loan
A unsecured personal loan is a loan that is not linked, or backed, by an asset that can be seized if the loan is not repaid. Because there is no security for the lender to repossess, the risk weighting of the loan is higher and so is the interest rate. An unsecured personal loan might be a good choice for debt consolidation or paying for a holiday.
2) Secured personal loan
A secured personal loan is backed by an asset that can be seized and sold by the lender if the loan is defaulted on. The most common form of asset used to secure a personal is a vehicle. Lenders also accept a house or sometimes other major assets to secure a personal loan.
3) Car loan
A car or vehicle loan is a secured personal loan. If the loan is not repaid, the vehicle can be seized by debt collectors and sold to repay your debt. Because the loan has security, there is a lower interest rate.
4) Personal Overdraft
A personal overdraft is linked to your bank account and allows you to spend more than you have in your account. Your account balance can therefore go below zero. The balance of your account below zero is your overdraft. An overdraft usually has a limit, like a credit card limit, that can not be exceeded. The lender will expect to see regular payments into the overdraft account, like your wages.
5) Fixed rate or variable rate personal loans
Personal loans can either be fixed rate or variable rate. A fixed rate personal loan has an interest rate and repayments that never change. A variable rate personal loan has a rate and repayments that can change as market interest rates change.
6) Peer to peer personal loan
Peer-to-peer lending is a new kind way of borrowing, and investing. Peer to peer lending is people borrowing off other people, without a bank in between. Peer-to-peer lenders link savers and borrowers together. A peer to peer personal loan features a rate based on your credit score, so borrowers with an excellent record of repaying debts will get a lower rate.
You can compare deals and research the personal loan market with Infochoice. All major lenders in Australia and their personal loan products are listed by Infochoice.