Short or Long-term finance options
How do personal loans work?
Personal loans work in very much the same as any other type of loan. You borrow a certain amount of money from a bank or lender so that you can pay for the things you need to. You will have an agreement with the lender to pay back your loan in monthly, fortnightly or weekly repayments.
Essentially, a personal loan helps you fill a short-term or long-term need for finance. You apply for a loan from a lender who then assesses your suitability for the loan, and if you are approved the lender will send you the funds for the loan. Your repayments will include the principal loan amount plus fees and interest. If you make your repayments as set out in your loan contract, your entire loan will be repaid when your loan term ends.
Secured personal loans
These loans are similar to car loans in that you will need to attach an asset, such as a vehicle, as collateral. However, you don’t necessarily need to use the funds you borrow to purchase that asset. require you to offer an asset as collateral. This may be the case or you may already have the asset in your possession and be using the loan to consolidate debt or undertake home renovations. Secured loans are less risky for lenders so they offer lower rates.
Unsecured personal loans
If you’re looking to obtain funds without offering an asset as collateral, you can consider an unsecured loan. As there is a higher risk for lenders if you default (the lender can’t claim any of your assets to recoup its losses) the interest rates are usually higher, but you will have more flexibility with how you use your loan amount. For example, you can purchase an asset as well as use it consolidate debt – however you use the loan is up to you.
Personal overdraft
This is a type of credit that attaches onto your transaction account. You’re able to access up to and including a specified limit when your available funds are exhausted and are charged a set rate. You are also usually charged a monthly or annual fee for the use of the credit line, but won’t be charged interest unless you use the overdraft.
