A “personal” loan is a standard loan (aka money you borrow from the bank) you get when you want to buy something now rather than wait to save the money (which most of us are guilty of from time to time). You might want one for that trip to Japan you’ve been daydreaming about, for that DJing course you’ve always wanted to do, or to pay off your credit cards at a better interest rate. Just make sure you’ve got something specific in mind, and you don’t blow it all on beer or fast food.
Another benefit of a personal loan is that, if you’re responsible with paying it off, it could lead to getting yourself a good credit rating. This basically means that by regularly making your repayments on time, you’ll be showing the bank that you’re responsible with money, which will help if you ever need to borrow money again in the future.
Firstly, you’ve got to be over 18, plus they’ll need to know all the usual stuff: your name, address and the value of your assets. But by far the most important factor is proving that you have a regular income. Essentially, when you borrow money, you have to show them that you’re capable of paying it back on a regular basis. If you can do that you are far more likely to be eligible to be approved to take out a loan.
When you apply for a loan, you are agreeing to repay the money within a period of time, which is called the term (generally 12 months to 5 years). You’ll repay a certain amount periodically, unless you decide to pay extra and pay off your loan faster – but be careful! Some banks will charge you a fee for making extra repayments, so factor that in to your choice when you’re assessing your loan options.
Don’t forget you will also pay interest on the amount you borrow, and that interest can either be fixed (stays the same) or variable (changes over the course of the term).
The thing about loans is that they have to be repaid, regardless of all the other stuff that is filling your crazy life. If you get sick, hurt or lose your job (morbid, I know), it could potentially be a good idea to have your loan insured, which could cover your repayments until you recover.
Make sure you do a lot of research before you take out a personal loan, as different providers can have drastically different costs and fees. Some tips to keep in mind when choosing a provider are:
- While it might seem appealing to pay your loan off slowly over a long term, remember this will mean that you’ll ultimately pay more in interest. If you can afford it, you’re often better going for a loan with a shorter term.
- Check out what deals various providers have on offer. Some could actually save you a bit of moolah in the long run.
- Beware the additional fees! These could include loan application fees (for starting a loan), monthly service fees, late fees (for when you miss a repayment) and penalties for paying off your loan early.
- This is a time when reading the terms and conditions is essential, no matter how boring it might be. You’re signing a pretty Serious Adult Contract, so you gotta know what you’re getting yourself into.
With most banks you can apply for a loan online, so if you’ve got a solid job and need that extra cashola to realise some of your dreams now, a personal loan could be a good option.
This information is intended to be general in nature and should not be relied upon for personal financial use.