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What to Consider When Taking Out a Personal Loan


What is a loan? In finance, a loan is money or any valuable material that is offered to another party (borrower) for a future refund of the loan amount plus interest or other charges. A loan is also a contract agreement between the borrower and lender that controls the mutual promise made by each party.

Most personal loans have an interest rate of between 6% and 36% annual percentage rate of charge (APR). There are different types of personal loans, such as secured personal loans, variable-rate loans, unsecured personal loans, debt consolidation loans, fixed-rate loans, cosign loans, and personal line credit.

Unsecured Personal Loans

This personal loan is considered riskier to the lender since it isn't backed by any security or collateral like a car, land, or house. Its annual percentage rate is slightly higher and calculated based on your credit score.

Secured Personal Loans

These loans are backed by collateral or security, which has the same value as the amount of money borrowed. Compared to unsecured personal loans, secured loans are less risky to lenders and have a lower annual percentage rate.

Fixed-Rate Loans

These loans have fixed rates, meaning that your interest rate and monthly installments remain constant throughout the loan period. Furthermore, fixed-rate loans enable you to plan and budget to repay the loan quickly.

Variable-Rate Loans

The annual percentage rate (APR) and monthly installments fluctuate depending on different factors set by the lender. However, unlike fixed-rate loans, this loan has a lower APR.

Factors to Consider Before Taking Out A Personal Loan

A personal loan can be a lifesaver or disaster depending on how well you spend it. Moreover, your financial position will determine whether you're ready to take out the loan or not. Here are some factors to consider before securing a personal loan.

Your Credit Score

A credit score is a numerical expression based on the analysis of your credit files. It represents your creditworthiness, and lenders use it to determine the interest rate to be paid when repaying your loan.

More often than not, most people struggle to keep their credit score on the right track. However, if you're one of them, don’t worry because Boostcredit101 has got your back. A good credit score means a lower interest rate and vice versa.

The Requirements Needed

Having the requirements needed for you to secure a personal loan assists you in knowing whether you qualify to get the loan. Some standard conditions are: you must be a citizen of that country, you must be 18 or older, and lastly, you must have a regular income.

How Will You Repay The Loan?

Securing a personal loan can be quite accessible to some people. However, disaster strikes when you are unable to repay the loan. You are advised to have a clear plan on how you will repay the loan to avoid sinking into debt.

The Amount Of Money You Intend To Borrow

To avoid overborrowing, which may lead to wastage, borrow the exact amount of money that you plan on using. This will prevent instances that may lower your credit score.