Personal Loans come with numerous features and characteristics that distinguish them. That means you can select a personal loan that is right for your financial needs. You can easily find the best personal loans by assessing your financial situation.
Here are the main characteristics of personal loans;
- A variable or fixed interest rate– A variable interest rate changes over the loan period according to schedule, whereas a fixed rate remains constant throughout the entire payment period.
- A fixed payment duration- Personal loans have a set period to be repaid in installments. Most loans generally run from 6 to 60 months, except the revolving line of credit loans which work similarly to overdrafts.
- Annual Percentage Interest Rate (APR) – This is the annual cost of the money borrowed, usually charged by the lending company.
Types of Personal Loans
1. Fixed or Variable Rate Loans
Fixed and variable interest loans belong to totally different groups of personal loans. Variable interest is used in revolving credit, while the fixed rate is used in installment loans. Therefore, you will not be required to choose one, as it will automatically get selected depending on the loan type. You must understand how each interest works to know the total cost of the loan. Click here to know more about.
2. Secured or Unsecured Loans
A secured loan is a type of financing that requires an asset as collateral. The asset gives the lender security to credit you money. If you default on the loan or fail to pay it, the lender will claim the asset to cover the cost of the loan. Examples of such assets could be a car, home, or jewelry. Those linked to vehicles are called logbook loans, while properties are called homeowner loans.
Secured loans can offer you significant amounts of money and can be best if you have a poor credit history. They’re also easier to manage with flexible payment periods. However, you should keep up with payments to avoid losing your property.
Unsecured Loans are not tied to any assets for security purposes. With this loan form, you can only get a little amount of between £1,000 and £25,000, and you should have a good credit score. It is flexible since you can choose the payment period and reasonable interest rates for long-term loans. Short-term loans, however, have higher interest rates.
3. Guaranteed or Unguaranteed Loans
With guaranteed loans, you will need a guarantor who can take care of the loan repayment should you fail to pay it back. This person should be creditworthy so that they’re able to pay if you don’t meet your obligation. This person also has to be close to the applicant for trust issues. If you have a poor credit history, then guarantor loans could be one of your best options. However, it is difficult to find someone who can guarantee you the loan.
Common Fees for Personal Loans
Interest rates and additional fees play a critical role in determining the total cost you will pay to service a loan. These fees vary according to lenders, and that’s why you should shop around before you decide to take a loan. Here are a few things to keep in mind;
Origination fees: Most lenders have an initial fee they usually to cover the loan processing. It ranges from one percent to six percent of the total credit amount.
Interest rates: They range from 5% to about 35%, depending on your credit amount and the lender. The higher your credit and shorter the loan period, the better the rates.
Prepayment penalties: Early loan payments could attract a penalty since the creditor is likely not to get interest.
Personal Loan Vs Other Options
Numerous people use personal loans to pay for homes, cars, emergency expenses, and consolidate debts. While these loans are appealing and easy to get, there are several better options to finance your needs. If you have excellent credit, a balance transfer credit could work best for you. It has a 0% introductory APR, and it would be economical if you can pay off the debt before the promotional APR expires. Be aware that late payments after this time attract very high interest.
Homeowners might also consider the line of credit or home equity loans, which offer high loan amounts at low interest rates. Home equity loans typically work on installment basis while like or credit apply the rule of the revolving credit. In both cases, your house becomes the collateral, and the creditor has a right to possess or sell it as the debt settlement.
Personal Loans are an excellent way to get extra finances for several purposes. You should, however, consider the above factors to decide what credit type will suit you best.