What to Look For in a Personal Loan
Personal loans are possibly the most misunderstood financial product on the market.
For a start, there are two types… secured and unsecured. A secured personal loan means that the bank will take a lien over something of value, for example a motor vehicle.
In the event of your not being able to pay the loan this gives the bank the right to sell the security to get their money back.
An unsecured personal loan is granted to an applicant purely on the basis of their income and the bank’s assessment of their creditworthiness.
Naturally it is easier to obtain a secured personal loan (PL) for higher amounts of money, and at lower rates of interest. This is because the banks risk level is as high.
Unsecured PLs are generally harder to obtain, but if approved, the amount is likely to be relatively low, something in the order of $5 -$10,000 maximum.
Once again, and quite surprisingly, a credit card can give you the same amount of flexibility albeit at a higher rate of interest, but the approval process is much simpler.
The main reasons for looking for a PL are usually to purchase a motor vehicle or to consolidate debt. Motor vehicle finance is generally easier to obtain because of the security which the bank can take.
Consolidating debt is a little bit more difficult. You might find it hard to understand, but most banks do not want to issue PLs to consolidate their own debts.
This means that if you have a credit card and PL with X bank, they will be unlikely to issue you with a new personal loan to pay out the existing card and personal loan.
You will need to go to a different bank to obtain this, and even then it is not a certainty that they will approve it.
Before you take out a PL it’s worthwhile considering whether an additional home loan, or an increase to your existing facility, might be more appropriate.
Naturally this is only available to you if you already own a house, but the interest rate applicable to the equivalent amount of money for a new home loan is substantially less than what it will be for a personal loan.
Tags: consolidating debt little, debt little bit, obtain security bank, personal loans, secured personal loan
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