Personal Loan Types

As the name suggests, a personal loan is acquired for personal use but there are a number of personal loan types. A knowledge of these different personal loan types is fundamental to you making the right choice in financing your next holiday, new car, or home renovations, indeed anything of value that you wish to buy.

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• Fixed monthly repayments make it easier to stick to a budget
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For many years people have used credit cards as personal loans because of their ease of usage and their pre-approved credit limits. But if credit card debt is not paid promptly it can become a very expensive way of paying for that larger asset. A personal loan is often a preferable way of managing your financial affairs because it is a cheaper and more restrictive way of paying for that larger purchase or service that is required. In short it allows you to exercise better credit control.

There are two main personal loan types – secured and unsecured:

• Secured : A secured personal loan is often used for purchases such as motor cars or hard goods.This means that if you default on the loan the lender has the right to repossess it and have it sold in order to recoup their money.

• Unsecured:An unsecured personal loan type is used in circumstances such as holidays or further education expenses, even for debt consolidation is some cases.It is available when there is no one tangible object that can be repossessed by the lender if you fail to pay the loan back.An unsecured personal loan often carries higher fees and a higher interest rate to compensate for the perceived higher risk being undertaken by the lender.

Before settling on which personal loan type to ask for when buying a car it will pay you to take into account the price of the loan (interest and fees etc.) as balanced out against your freedom in reselling the car again if you feel you want to change vehicles before the loan is fully repaid.You may find that if the personal loan is secured, the ownership is shared with the lender and permission will have to be obtained.An unsecured loan will allow you to change cars without you having to notify your lender of your intention.

When buying a new car it is often cheaper to take out a specific new car loan that is fully secured against the car value.

Personal loan types variable or fixed.

Different lenders offer a variety of rates, fees and conditions in order to attract your business and much of this difference rests on whether the loan is of variable interest rate or of fixed interest rate. The difference between the two being:

• A loan with a fixed interest will have the repayment fixed at a certain interest rate for a specific period of time.A fixed interest personal loan is often the cheapest of the two and is especially preferable in times of rising interest rates generally.

• A variable interest rate personal loan allows for fluctuations in interest, determined by the Reserve Bank from time to time, to be reflected in the rate charged on your loan.It is at its most beneficial in times of falling interest rates and it is not restricted by having any fixed period as does a fixed interest loan.

It is your personal choice whatever personal loan type you finally settle on but make sure you fully understand all the ‘small print’, especially what your options are if something goes wrong with your finances before you have the loan fully paid out.

If you want to learn more about personal loan types you can view our comparison tables or follow a secure link to a providers website here.

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