If you are a little short on money, a personal loan can help you gain access to funds. This is not always the right choice for your situation, so it’s important to understand how personal loans work before you take one out.
A personal loan is an unsecured debt. There is no security, such as a property. The major differences between personal loans and other loans are
- Rates can be higher. Because there is generally no security, interest rates for personal loans can be higher than secured loan (such as a real estate mortgage) but they are generally lower than credit card rates
- They will have a fixed time frame and need to be repaid once the term ends
- In some cases, you can obtain a revolving line of credit. Sometimes, a personal loan can also work as a revolving line of credit, like a personal credit card.
Advantages of Personal Loans
If you are not a home owner, or you don’t have much equity in your property, a personal loan can be a great choice if you need money. If you are approved for a personal loan with a fixed rate and term, it will force you to be disciplined and pay the loan off within the set term of the loan unlike a credit card, which can tempt you to use the money again once you pay it back. Another plus with a personal loan is the interest rate can be lower than a credit card.
A personal loan can have some disadvantages to study. For example, the interest repayments are generally not tax deductible, while the interest on a secured investment property usually is. Also, rates can be much higher over 10% percent on a personal loan. Home loans are usually closer to 5-6% percent. So, you end up paying a lot more on a personal loan than you would on a home loan for the same loan amount. But in some situations, a personal loan is the great option. If this is the only option for you, please consider your options carefully.
It’s very important to consider products from many different lenders. Lenders have different fees for personal loans, so it is important to compare these costs.
All these advantage, disadvantage, fees and terms can be tailored to your personal situation. Contact us for more information