Sometimes, it is not always practical to save for things like an overseas holiday, new car or renovations to your home. It could take years to save up enough money to do these things and by the time you have saved enough, it is too late.
The time may no longer be right to travel or you’ve already missed out on an amazing deal, your existing car might have totally died by then (how much is your existing car costing to repair every time it breaks down?) and the longer you leave renovations, the worse it can become. Not just aesthetically, but financially too (structural, electrical and plumbing issues can be costly the longer you leave them).
A personal loan is a great way to help finance a new car, a holiday or even a small renovation or DIY project around the home – I will explain why. For small renovation or DIY projects, there is no need to take out a home loan or refinancing your existing home loan.
A personal loan is a great option for small home renovation or DIY projects, as they are fixed for a shorter time frame and therefore you are not subjected to as much in interest. A personal loan usually has a set amount to pay each month for the term of the loan (usually fixed for a minimum of five years).
If you decide to go with a secured car loan (ie a personal loan where your car is collateral for the loan), it can make things tricky when you go to buy another car later on. As you have to pay out the existing car loan when you sell the car you have now. However, a secured personal loan does offer a lower interest rate compared to an unsecured loan.
There are two main personal loans, a variable rate loan offers flexibility to make extra repayments without a fee or a fixed rate loan which has fixed repayments for the life of the loan.
Before applying for a personal loan, work out the total amount you require and then use an online calculator, like the People’s Choice Credit Union personal loan calculator, to work out the repayments. Can you afford the monthly repayments required to pay off the loan?
Don’t just settle on your bank’s personal loan offerings, shop around for the best interest rate that is suitable for your financial needs (ie will you need it to be flexible or fixed?).
Only apply for one loan at a time, when you apply for a loan you leave a “footprint” on your credit record which lenders check before approving a loan. Too many loan applications bring down your credit score and affect future applications.
Make sure you read all the documentation. Usually, agents are only interested in obtaining their sales targets and not your best interest. Make sure the document is what you agreed on and applied for.
Use your loan for its intended purpose (don’t be frivolous with the money) and if you can, try and pay it off quicker than the initial term you agreed on.
We hope these tips have been helpful. What other tips would you suggest? How was your experience obtaining a personal loan?
#SP The post was a collaboration between PCCU and Woman of Style and Substance as per our Disclosure Policy. All opinions are our own.