So you’ve gotten yourself into a bit of a pickle, and you can’t get out of it without some help. Without a lot of financial options, the easiest solution seems to be taking out a personal loan. But are personal loans a good idea? They seem to be a continued chapter of another financial burden. We take a look at the factors and types of personal loans that could be suitable for you:
A Secured Personal Loan
Having assets such as a house or car can be used as security for the loan. Your provider will take these assets into consideration, and possibly offer you a lower personal loan interest rate, as there is less risk to the provider if there is a loan repayment default. In the event of a default or inability to repay the personal loan, your assets can be legally seized by the lender.
In other words, you will need to make an accurate application with your chosen lender to make certain you are not under financial pressure to pay off the personal loan. It could be a good idea to have repayments automatically deducted from your pay or bank account to guarantee they are made on schedule.
An Unsecured Personal Loan
In this scenario, you won’t have any assets to protect the lender, and your personal loan will incur a higher interest rate. Nevertheless, the same rule of thumb applies, and you need to ensure that repayments are affordable and ongoing for the duration of the loan.
It’s a good idea to compare various lending institutions to make sure you get the best possible deal. A dollar saved is a dollar earned and a step closer to becoming financially solvent.
As with other types of loans, there are several ways of making repayments. The most popular methods are Variable Interest Rates and Fixed Interest Rates.
Variable interest rates are influenced by the final decisions made by the Reserve Bank of Australia. Changes to the Reserve Bank cash rate filters down to the banks and their customers. Taking out a variable rate is the option to make additional repayments on the personal loan without incurring any additional fees – which can be a major perk. On the downside, the nature of variable means that your interest rate can go up or down at any time, and repayments could become unsustainable if finances are tight.
Fixed interest rates can provide you with confidence in knowing that your repayments will remain steady for the entire duration of the loan. The downside is that fixed interest rates are generally higher than the prevailing variable rate at the time of taking out a loan.
Additional repayments on top of your scheduled repayments may also not be allowed with a fixed rate, or will incur a fee. Extra charges in the case of early termination or a change of loan agreement are also the norm for a fixed interest rate loan.
All information sourced from: http://aussiefinanceblog.com.au/personal-finance/should-i-get-a-personal-loan-to-pay-off-debt/