What to ask BEFORE signing up for personal loans
Wednesday September 2, 2009
The decision to take on a personal loan can be a significant one, considering the current national economic state. Although recent reports say that Australia is recovering and moving towards a healthier economy, it is still wise to consider all financial decisions carefully.
Personal loans are an excellent option when you have a major financial expense such as a car, wedding or holiday, but they can present significant issues with repayments and rates attached so research is key to making the most of personal loans. This means questions to ask, choosing between secured and unsecured, fixed or variable.
Once you have decided to take on personal loans, there are several questions that must be asked of a lender before you choose to sign with them. These include:
- The interest rate?
- Are there any application or ongoing fees?
- Are pre-approval for loans possible?
- If so, is there a time period attached?
- What are the qualifications for a lower interest rate?
- How are repayments made?
- Can I make extra repayments or Lump Sum Repayments?
- What are penalties attached? What if I pay off the loan early?
Of course, there are decisions that you will need to make before meeting with a lender, including the choice between a fixed rate or a variable rate, both presenting various pros and cons.
When we speak of variable rates, we are referring to an interest rate or dividend that can change on a periodic basis, as determined by outside financial market factors such as the prime interest rate. Also known as an adjustable rate, the variable rate has been very popular over recent months due to the lowest central bank interest rate levels in years.
With the Reserve Bank Interest rate movements being consistently lower, personal loans with a variable rate attached have been recorded with some of the lowest rate in history. Of course, this also works in reverse with rate rising whenever the Reserve Bank Interest rate movements increase.
Other features of a variable rate is that they are far more flexible, allow early repayments without any penalties which means that payments can be made quicker, making the loan cheaper in the long run. This means variable rate is a popular choice for when the Reserve bank rates are down and you believe you can pay back the loan relatively quickly.
Then there are fixed rates on personal loans. Fixed rates mean that you lock in a repayment figure, protecting you from interest rate movements by the Reserve Bank. A major benefit of this system is that the rates cannot increase on you and you have a set amount, allowing for long term budgeting. However, there are a number of restrictions that are attached to fixed rate personal loans, including that many extra repayments may not be accepted or additional cash penalties may apply; meaning debt cannot be paid of early.
Another choice to be made when considering personal loans is whether to opt for secured or unsecured loans. This choice comes down to a question of collateral for the lender and the risks involved with lending to the borrower.
A personal loan that is secured means that the lender will have lien over an asset, reserving the right to claim that asset if a default occurs. As a result of this, secured loans are generally cheaper than unsecured, which are without any collateral.
Use PersonalLoans.com.au to compare the best personal loans on the market
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