You may need financial help for many reasons, such as financing home renovations, moving costs, education, and even emergency or large expenses like weddings. Personal loans can be handy when you need financial assistance to get your dream vehicle.
The convenient financial tool also helps consolidate your existing debts. With almost 50% of people falling into personal debt, this can be a lifesaver.
The best thing about this type of loan is that banks and other financial institutions offer the loan at a lower interest rate. So, although it is not less than home loan interest rates, you can use the money for various purposes.
But to make the most of this opportunity, you must understand mainstream lenders’ different personal loan types.
Secured personal loans
Secured personal loans are loans that are provided against security or assets. You can even keep the thing as collateral against which you borrow the loan. This is to ensure the lender that they can seize the asset and sell it to retrieve the money in case of a failure in repayment.
You can offer properties, vehicles, and even cash as security in exchange for a lower interest rate. Due to the asset providing an assurance, the lender may be more willing to grant you the loan.
As the name suggests, unsecured loans do not require you to put up anything as collateral. However, it is up to the borrower to convince the lender to approve the unsecured loan amount. For this, you must provide evidence of income, such as pay slips, invoices, etc. You may even need a guarantor, especially if this is your first time applying for a loan.
This type of loan also has a much lesser interest rate than credit cards. However, late repayments can incur high fee penalties and even legal actions from the lender.
Student and guarantor loans
Students can apply for these loans to cover the cost of education and other expenses, such as buying a new computer. In addition, the loan helps students avoid the upfront cost as they can pay the amount over a few years. You may even find banks that approve the student personal loan without asking for an application fee.
Students also can avoid the pressure of taking a part-time job alongside their course with this loan. But the interest rate can become difficult to afford for students on a low budget.
Line of credit loans
Most people are familiar with the line of credit loans, as seen with credit cards. This is incredibly convenient during emergencies. The pre-agreed borrowing limit also makes it easy to handle the expense since you only pay interest on the visible fund and costs that occurred.
This means you only pay for the amount you have spent even though the limit is much higher. However, this type of personal loan has the highest interest rate.
A personal overdraft loan is a line of credit loan that can be added to regular accounts. You can use the amount to cover any sudden expenses that may arise. Your bank balance also temporarily increases.
But like all lines of credit loans, there is a high interest to be paid for overdraft loans. So, it is better to consider the other options before opting for this type.
A personal loan can be of many types, and depending on your requirements and affordability, you can avail of them. But understanding the types can give you a better idea about which one you should go for.
A secured or fixed loan might be best for single purchases as it allows you to make regular repayments at a lower interest rate. But for education purposes, a student loan is a better option.
It all comes down to each individual’s needs. Just make sure to understand the loan policies of the lender and assess your financial ground properly before opting for them.