The personal loan has created opportunity for many Australians. Of the various debt types, the personal loan seems to have the most flexibility. Whether travelling, opening a business, going to school, or making renovations to your home, the personal loan can make this goal possible.
Even so, taking on personal debt is a responsibility, and while personal debt has increased in Australia indicating that it is a fact of life, the consequences of defaulting on a loan can have long-lasting effects.
The ease with which individuals can apply for a personal loan can make consumers forget the money is still, in fact, borrowed money. For this reason, consumers should take a few factors into consideration before taking on debt.
Keep reading to learn more about factors to consider when taking on a personal loan.
Types Of Loans
When looking for a program, one consideration is related to the type of loan you want to apply for, and the secured and unsecured loan are of the most popular today. The secured loan allows borrowers to finance a personal loan but through collateral.
The best way to use this type of loan is to borrow against a savings account which will allow you to benefit from the interest accrued on the account while essentially paying yourself back. Typically, those with no credit, poor credit or very little income apply for these types of loans.
Then, unsecured loans are those that do not require any collateral. The standard loan requires applicants to meet certain requirements, and depending on the program, can last from three, five, and seven years. Because these are not secured, borrowers have to be careful when signing onto this type of debt.
Terms And Conditions
When looking for a loan program, borrowers should pay attention to the terms and conditions that usually are found in a contract. Factors to pay attention to when taking on a loan are related to fees and penalties that are assessed as a part of the loan. For example, some loans will assess an early termination fee for paying the loan off before the end of the term. Also, pay attention to any conditions in which the loan can be terminated and the lending institution can call in the loan. Essentially, the terms and conditions of a loan determine the relationship the lender establishes with borrowers, so it is very important to look at this factor.
Interest Rates And Types
Explore the interest rates and the types of interest available before applying for a loan. While rates tend to cluster around a certain percentage, prospective borrowers can look for competitive rates in a number of locations. Online institutions and credit unions typically have competitive rates, and while traditional institutions might be slightly higher, there are advantages with working with an established financial institution that can offer a menu of options.
Then, borrowers should consider rates types. Fixed rate loans remain constant while variable rates fluctuate. The advantage of a variable rate loan is when the rates are low, so is your payment plan. Alternatively, if the rates increase drastically, your payment can balloon as well.
Loan Protection Plan
A loan protection plan provides security against defaulting on a loan. Many loan programs offer them, and while there is a surcharge, this is the best type of insurance against defaulting on a loan. Ultimately, these loans are insured in the event a borrower cannot pay back the loan.
Considerations For Your Benefit
Before applying for any debt, these are just a few of the factors to consider. A personal loan gives consumers a leg up in funding any type of venture simply through providing the funding. However, debt is debt, and one of the best ways to hedge the risk related to taking on a personal loan is to thoroughly understand all parts of the loan.