Personal Loan Interest Rates
Personal loans are generally unsecured loans which means that there is no collateral like a house or car. For this reason, personal loan interest rates are higher than other types of loans. A mortgage, for example, is a secured loan, guaranteed by a house or property. The fact that the lender has the collateral in case of default is part of what drives down interest rates on secured loans. A personal loan - one without collateral - is not as safe for the lender. Because of this, personal loans attract higher interest to balance out the greater risk.
However, even though personal loan interest rates are higher than those of secured loans, personal loan interest rates are usually still lower than credit card interest rates. If a secured loan is not an option for you, then a personal loan still might be a better choice than a credit card or consumer (In-store) finance.
Personal loans are for a fixed amount.
The amount of personal loans ranges anywhere from $1,000 to $50,000 and depends on your credit rating. The better your credit score, the more money you can borrow for a personal loan. Some financial institutions have a lower maximum on the amount of personal loan you can borrow. For example, you may be able to borrow only a maximum of $5,000 as a personal loan.
Personal loan interest rates are usually fixed.
Personal loan interest rates are set and does not change for the life of the loan. Like the loan amount, interest rates on personal loans are based on credit rating. The better your credit score, the lower your interest rate. A lower interest rate is very beneficial because it means you pay a lower overall cost for the loan. Some personal loans come with a variable interest rate that changes periodically.
Personal loans have a fixed repayment period.
You have a set period of time to repay your personal loan. Loan periods are stated in months, e.g. 12, 24, 36, 48, and 60. Longer repayment periods lower your monthly loan repayment, but they also mean you pay more in interest than if you had a shorter repayment period. Your interest rate may also be tied to your repayment period. For example, you may have a lower interest rate with shorter repayment periods and there may be a penalty for paying your loan off early.
Tips when considering a Personal Loan
· If you are taking out a personal loan for household basics, consider making use of our Money Coaching service.
· Ask yourself if you really need to borrow the money. Could you cut back on something and save instead?
· Carefully work out what the personal loan will cost you each month and in total over the entire period before committing yourself.
· Try not to borrow more to repay an existing loan unless it is beneficial for you, in some cases it may be better to get a debt consolidation loan to repay all of your debt. You could also talk to your financial institution instead about the possibility of reducing the interest on your existing loans.
· Make sure you understand all the fees that may be charged. Many personal loans have an establishment fee.
If you want to determine whether a Personal Loan is right for you, contact us, or better still, join our Money Coaching programme now!