A personal loan may seem like an outdated financial product, especially with the prevalence of credit cards growing ever stronger. However, the benefits of a personal loan can often suit your needs better than a credit card, and you may be eligible for a personal loan, where you are not for a credit card.
Benefits of a Personal Loan
Whether you need finance to buy a car, caravan or boat, whether you’re planning a holiday or a home extension a personal loan can offer you unique benefits such as:
? A secured loan. A secured loan is one which has the item you are borrowing to purchase, as security against the loan. This means if you default on the loan and can’t make your payments your lender is able to seize the item to recover their costs.
? A lower interest rate. A personal loan has one of the lowest interest rates of any type of financing and much lower than a credit card interest rate. A secured personal loan has an even lower rate than a standard personal loan as you are less of a risk if you are able to put up an asset as security against your borrowing.
? A set term. Unlike a credit card which you can be repaying for an indeterminate number of years, a personal loan has a short set term, often five or seven years, so you have a clear end point in sight. You can also often choose your own personal loan term, for as short as one year in some cases.
How to Apply for a Personal Loan
The personal loan market is a competitive one and if you take the time to shop around and compare you can come up with a personal loan package with the lowest interest rate and the best choice of features for your needs.
To apply for a personal loan:
- Check your credit. Before you apply you want to gauge your chances of approval because even a rejected loan application can appear as a black mark on your credit report. Therefore obtain a free copy of your credit report and look for any mistakes which could give you a poor score. These could be bills which you paid but were not registered or you may be the victim of identity theft. You’ll also be able to see, all in one place, how much debt you already have, and whether more is wise.
- Aim for a secured loan. Applying for a secured loan will allow you to negotiate a lower interest rate and a higher borrowing amount if you need it.
- Consolidate your debts. A popular use of a personal loan is to pay off existing debts such as credit cards or store cards. When you use a personal loan to repay bad debts you can be paying a lower interest rate and making just one monthly repayment, rather than one to each card.
- Be a good personal loan customer. You can also use a personal loan to repair a bad credit rating because making your repayments on time every month shows responsibility and reliability when it comes to credit. At the same time, don’t forget about your other debts or financial commitments such as bills or rent and mortgage repayments.
- Shop around. Don’t apply for the first personal loan product you find, from the first lender who will approve your loan. Instead, make sure you get multiple quotes on your personal loan needs; a comparison website is an ideal tool for this as you can enter your information once and receive quotes from the lenders and products which best suit you, so you know you are making comparisons on the same information, on a level playing field.
Guest post by Eric Cheng, who is a regular personal finance writer and part of the team at Personl Loan Finder, a 100% free Australian personal loan comparison and application service. Visit the Personal Loan Finder website for more information on personal loans.
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