Which Personal Loan Should I Apply For?
If you need to make a one-off purchase when money is tight you have a number of ways to raise the cash. Obviously you could try to increase your income, but if that is not possible, then you are looking at either borrowing from family or friends, using a credit card, or taking a personal loan.
Many people don't like borrowing money from people they know, and credit cards come with an inherent risk of becoming large uncontrollable debts. This leaves you with the personal loan. There are many different types of loans on the market and you may be confused by your options. Which loan is going to be best for you?
Work Out Your FiguresBefore you can really work out which loan will suit you best, you need to have a few things figured out first. What is the loan for, how much do you need to borrow, and how quickly can you afford to pay it back? The answer to these questions should make your decision a little easier.
If you are looking for a small loan of maybe $1000-$5000 for a holiday, a new car, or perhaps some home improvements, then you may well be looking at a basic unsecured loan. This type of loan is not secured on any of your property, and is paid back over a fixed period of time. The shorter the repayment period, the higher your monthly payment.
Don't let that put you off, however, as the shorter the repayment period, the less you will pay in interest. This is why it is important that you work out how much you can afford to repay each month. Look within the terms of your loan to see if you are allowed to make over payments if you have a windfall or work bonus. This will help you clear the debt even quicker.
Larger LoansIf you need to borrow a larger sum of money, or perhaps want to consolidate all of your other debts into one, it may be that a secured loan will be better for you. These loans are a little riskier in that they are secured against your property, and any failure to make payments could result in you losing your home.
Fixed Or VariableAs far as interest goes, you will normally have two choices: fixed or variable. If you have a fixed rate of interest, then, even if interest rates were to rise, your payments will not change. This will protect you from any sharp base rate rises. On the flip-side, should rates drop, you will not get the benefits of those drops.
A variable rate of interest will normally track just above the base rates meaning you are at the mercy of the central bank. The plus side here, however, is that you will benefit from any fall in rates.
The key to finding the right personal loan for your circumstances is to be totally clear from the beginning how you are going to repay the debt. Once you have a battle plan drawn up, you can begin comparing offers and finding the one with all the right features and the best rate for your pocket.