Nearly 40% of Australian adults need loans to buy a new vehicle, renovate their home, pay for a wedding, or to travel. People choose a personal loan instead of a credit card because they get the choice to control the repayment period and amount. They avail the loan amount from financial institutions and repay it with interest over a specified period. Personal loans are similar to credit cards, but they are much cheaper. The most significant benefit of a personal loan is that it allows a person to spend a huge amount and repay it over a longer time.
Two types of personal loans
Secured loan
People avail of a secured loan after offering something as collateral. These loans come with a low-interest rate, and lenders ask for security because, in some cases, people cannot repay the loan. When borrowers don’t repay the amount, the lender is entitled to take the things pledged as security. Borrowers can offer a house, car, jewellery, or stocks as collateral against the debt.
Unsecured loan
An unsecured loan doesn’t need collateral. The interest rate is higher because there is no assurance or security that the borrower will repay the debt. When people fail to repay, the lenders may take them to court. Lenders provide unsecured loans based on the borrower’s creditworthiness. The greatest benefit of an unsecured loan is that the borrower can spend the money however they want.
Advantages of personal loan
- It is versatile, and people can use it anytime to meet their financial needs, like medical expenses or home renovation.
- The interest rates are better than the interest rates of credit cards. It is the best option for quick cash requirements.
- The criteria for availing of this loan doesn’t depend on the credit score. People with bad credit scores can avail of a loan but may need to pay higher interest rates.
- It allows people to borrow the required amount of money. They get the amount they need and find it becomes to repay it over a period.
- Compared to other types of loans, a personal loan gets approved quickly, and borrowers can access the money in a few days.
How to avail of a personal loan
Identify needs: People must avoid taking a loan when they require a small amount of money, like paying an overdue bill. A loan is a right choice only when people need a slightly larger amount of money.
Credit rating: Anyone with a good credit rating can avail of a loan quickly. Credit rating is determined by several factors like payment history and loan balances. Credit-worthy people have no trouble getting a loan.
Make a wise choice: People planning to avail of a loan must ensure they can repay the monthly instalments. Some loans have higher interest rates, or lenders may ask for collateral. The loan must suit the personal situation of the borrower.
Tips to get a loan approval
- The loan application needs to be honest and accurate. Loan applications with false and inaccurate information will get rejected.
- People who want a loan must have stable employment to prove they are low-risk applicants.
- People need to be sensible while choosing the loan amount. Lenders restrict the loan amount if the borrower’s credit score is low.
- The best choice for people is to find a lender who is amenable to their situation. They need to avoid applying for loans for which they are not eligible.
Many Australians face the challenge of not having enough money to meet their goals. Personal loans help people to handle a diverse range of expenses. These loans greatly benefit people with immediate financial needs and resources to repay the money over a period.
