In an ideal world, paying for things would not be a thing. Alas, living in a world where the barter system does not exist anymore means that everyone falls into a bind and needs to borrow money from time to time.
So, whether it is an event or a significant but crucial purchase, personal loans are the go-to. But very few people know that there are a few different types of personal loans. To name a few, you can take a debt consolidation loan, a secured loan, or an unsecured loan.
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Why Opt for a Personal Loan?
One can use a personal loan to pay for a wide range of expenses. This might be to cover an unforeseen expense, make a big purchase, or contribute to the cost of an event like a wedding or vacation.
People can pay for any large expense using a personal loan. Moreover, personal interest rates are generally much lower. Hence, they are easier to pay off.
Types of Loans
There are several different types of personal loans. In fact, banks often offer their own personal loan options.
But certain loan types are common across moneylenders. Here are four of them.
1. Secured Loan
Secured loans are loans in which an asset is used as security against the loan’s cost. This is usually a car or a house (also known as a mortgage).
However, as new loan types enter the market, one might use other assets such as stocks, bonds, and even cash in a savings account to secure a personal loan.
2. Unsecured Loan
Unsecured personal loans do not have any assets tied to them. Since the lender is taking on greater risk, the interest rate and fees are higher than on a secured loan.
An unsecured personal loan might be advantageous if someone doesn’t have an asset to use as security.
3. Debt Consolidation Loan
Almost 37% of the Australian population struggles with paying back their debts. So, if one has many debts that need to be paid off, a debt consolidation loan may be the way to go.
The objective is to obtain a single loan and utilise it to pay off all outstanding debts. This way, one can concentrate solely on repaying one loan.
Some of the advantages of a debt consolidation loan include the possibility of receiving a reduced interest rate and the convenience of only having to handle one debt rather than multiple.
4. Overdraft Loan
A personal overdraft is similar to a line of credit that is tied to a transaction account. When a person’s bank account runs out of funds, the overdraft feature kicks in, allowing them to access more funds.
Like any other type of personal loan, one must repay the money spent from the overdraft with interest. However, one is usually only charged interest on the amount spent instead of the entire overdraft limit.
Eligibility Criteria to Procure a Loan in Australia
To be eligible for a personal loan, an individual needs to be:
- 18 years of age or more
- A resident of Australia or New Zealand or have Australian citizenship or have a relevant visa
- Employed and have a steady income
- Not going through the bankruptcy procedure.
Furthermore, several banks and moneylenders have a minimum income requirement to guarantee that they are paid back on time.
Personal loans are heaven-sent solutions in times of absolute need. However, it’s a good idea to reach out to a financial counsellor before making hasty choices. This will help one understand all the available options better and make more informed financial decisions.