Things to Consider when comparing Personal Loans
The ability to find the best personal loans* that you can acquire, comes down to what best suits your borrowing purpose at the lowest interest rate and most flexible terms that you can find. Personal loans can be used for a wide range of purchases including holidays, renovations, weddings or even a car. You borrow a set amount of money over time and pay it back with interest over this period. You can apply for a fixed rate or variable rate personal loan.
There are many factors you must consider when comparing the best personal loan for you. You should take into consideration:
- Interest rates - The interest rate will determine how much extra you have to pay back to the bank.
- Loan term - Personal loans generally range in length from 1 years to 5 years. Depending on how long your loan is for will determine your monthly repayments.
- Fees - Each lending institution will have their own fees and charges for taking out a loan. Make sure you compare the rates from each lender before applying.
- Secured or unsecured - A secured personal loan is generally tied to an asset - so if you don't pay your loan, the asset is repossessed.
Types of personal loans
Credit cards. Yes, credit cards can be the best personal loans* and they are definitely the most popular because of their ease of access. A credit card is good if you can pay off the debt regularly and within the interest-free period each month. If you fail to do this, the interest on the debt can become crippling.
Best personal loans, secured or unsecured.* A genuine personal loan is usually cheaper than a credit card as far as interest is concerned. Especially if you are unable to pay your credit card debt within the interest-free period. In this manner a bank, credit union, building society or other financial institution-supported personal loan is the best personal loan to acquire as it has to be negotiated separately for each purpose, which means more stringent credit control. Personal loans can be secured or non-secured. This means that many personal loans, especially those used for purchasing cars, have the amount of money secured against the value of the car. Other personal loans are not secured. In order to obtain one of these loans the lender will take into account:
- Your employment stability.
- Your ability to repay.
- Your credit history.
- Your monthly income.
The difference between the two will be fees and interest. The cheaper loan being the personal loan with the less risk to the lender.
It has become more common for lenders to offer unsecured personal loans for smaller loans because of the cost incurred in repossession. It is often more profitable for a lender to write off a smaller bad debt rather than pursue it and recoup their lost money through increased interest and fee charges. This approach often suits the borrower as well, as he or she becomes the sole owner of the product purchased and can re-sell it without having to refer his or her intention to the lender for permission to do so. The extra interest and fees charged are often willingly paid to obtain this flexibility.
If you intend to make a major purchase or borrow for a holiday it will turn out to be cheaper to obtain a personal loan rather than simply use your credit card. Some lenders have no set minimum amount to borrow but most loans are written from $2,000 upwards with a maximum repayment term up to 5 years.
When borrowing you should all the time keep the following points in mind:
- You must always be able to remain in control of your debts. It is financially deadly to allow your debts to control your life. Never overborrow!
- Remain budget-conscious and make allowances for your loan repayments before you spend further.
- Always borrow from a well-known and reputable lender.
- Be satisfied that borrowing is the best way to obtain the product or service you desire. If there is another way e.g. lay-by or savings, then take that avenue in preference every time.
* The use of terms 'Best' and 'Top' are not product ratings and are subject to our disclaimer. You should consider seeking independent financial advice and consider your own personal financial circumstances when comparing personal loans.