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Is a Personal Loan the best way to consoldate your loan debt? |
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Submitted by Cheryl Adams
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A personal loan from a bank is usually the cheapest way of borrowing money open to most people.
Personal loans may be secured or unsecured. With a secured loan the lender has rights over certain property, like a car. An unsecured loan will usually have a higher rate of interest because it is a higher risk loan, which the lender would have more difficulty in recovering if you default on the payments.
A personal loan gives you more protection if something goes wrong than a Hire Purchase agreement. You usually have an opt-out period in which you can change your mind without any penalties
Personal loans come in many guises; car loans, property improvement loans and college loans are just a few.
A personal loan enables you to purchase what you need now and pay for it over the coming months or years. If you need a car now and you don’t have the money now, a personal loan gives you the benefit of the money now, enabling you to buy the care, keep a job and pay off the loan.
Personal loans are distinct from mortgages because a mortgage can only be used to buy property. The mortgage loan will be at a lower rate of interest because it is secured against a property that is expected to rise in value, reducing the risk the lender is exposed to.
With the advent of the Internet the customer can shop around for a personal loan from many sources and compare payments easily. Customers do need to compare like with like though. Some loans will include an element of insurance, others will have set-up fees or early repayment penalties.
Comparing interest rates is another difficult area, Some companies quote a flat rate, a percentage of the original loan added periodically. The low rate very quickly mounts up to an exorbitant one.
Interest rates may be variable or fixed. Even a large difference in annual percentage rate (APR) may mean only a small difference in repayments, especially over a short 12 month term.
Be sure to check that the amounts payable are within your budget or you could lose the goods you bought and have to still keep making the repayments on them!
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