If you’re considering taking out a personal loan, then we’re glad you’re here. Okay, you might think we’re going to tell you to go for it, after all, we are finance brokers who help people secure loans for a living.
But, a personal loan isn’t always a good idea. Here’s what you need to know, if you’re thinking about taking one out.
One of the key differences between a personal loan and a home loan or vehicle loan is collateral.
What’s that? Well, your property is collateral on your home loan. Your vehicle is collateral on a vehicle loan.
Collateral matters, because if you do happen to default on your loan, the lending institution you are borrowing from can foreclose on your home or vehicle.
This might not sound good, but it does mean that your lender considers your loan to be a lower risk, and lower risk means lower interest on your loan.
A personal loan has no security, which is why you’re likely to pay more interest.
In our books, more interest isn’t good. But, there are circumstances when a personal loan may be a good idea. Here are our top 3.
If you have debt on a number of different credit cards, consolidating all of your debt into one regular repayment could reduce your interest.
This would work if the interest on the personal loan is less than the combined interest on the credit card repayments.
We recommend asking your mortgage broker to run the numbers for you, so you can determine if consolidating your debt is worth it.
If you’re paying off a student loan at a particularly high rate, then it may be worth refinancing to a loan with a cheaper rate.
Once again, we recommend comparing the loan you currently pay with what is available on the market.
A good finance broker can do this for you, and will take some of the stress off repaying your education.
If you’re planning a wedding, or some kind of big event, some people prefer to take out a personal loan, rather than relying on their credit card.
This is simply because interest rates on credit cards can be much higher than on a personal loan, which means you’ll pay less over the entire term of the loan.
There are risks though. You need to have the capacity to repay the loan, otherwise you’ll experience financial stress.
If you still believe a personal loan is the right thing for you, we recommend speaking with a mortgage broker in person, about securing suitable finance.
There are many online finance solutions being advertised in Australia, which offer fast and ‘easy’ personal loans.
The problem with these loans is that often they attract high levels of interest and encourage impulse purchasing on expensive products.
For more on the dangers of online loans, head here.
If you’re in the market for a personal loan, contact us today.
Our brokers will research and tailor a loan that matches your goals, so you don’t get caught out by high levels of interest.
Get started now.