A personal loan is a debt taken out by an individual consumer. This type of loan may cover a specific item the lender can seize if the borrower doesn’t pay (secured) or the borrower might take out a personal loan without providing any collateral to ensure payment (unsecured). The length, interest rate and terms of a personal loan vary by product type, lender, the borrower’s credit status and the loan’s purpose.
Personal loans in Australia may be used for debt consolidation, automobile purchases, home renovations and repairs or for any other purpose. Debt consolidation allows the borrower to use the loan funds to pay off multiple creditors; if the loan has a lower interest rate than the debts being paid off, the borrower saves money and only has to make one payment instead of several payments each month. A personal car loan is secured by the car itself, but a personal home renovation loan may be unsecured. A borrower might use a personal loan to pay to trips, to go on holiday and to finance other costly events, such as a weddings. Regardless of the loan’s purpose, a borrower gets the money she needs using a personal loan.
A borrower must complete an application for a personal loan with the lender of her choosing. Applications vary by lender, but she commonly has to provide personal information, proof of income, proof of her current financial circumstances and the reason for the loan. Some lenders offer personal loan applications online, or she may apply at a local store. The lender will check her credit report and confirm her information before making a decision. If she is approved, she’ll receive an offer from the lending in writing that states the loan amount, interest rate, available lengths and terms. Repayment schedules vary; the borrower might able to choose if she wants to make payments weekly, fortnightly or monthly, and common loan lengths are anywhere from three to seven years.
Unsecured personal loans commonly carry higher interest rates because the lender is taking more risk. The borrower isn’t supplying property the lender could use to enforce loan repayment if she stops making her payments. There may be loan fees and penalties, depending on the personal loan type and the lender’s policies. For example, some lenders charge a prepayment penalty if the borrower pays the loan off too early, such as before the first two years of payments has passed. A borrower should get offers for more than one lender and read all terms carefully before taking out a personal loan.