Personal Loans


If you are in need of money, a personal loan could be the solution to help close the gap in your budget. Depending on your circumstances, a personal loan may be quicker for approval than an equity loan on your home and be more cost effective than a credit card.

What is a Personal Loan?

A personal loan is a lump sum of money loaned from a financial institution that is repaid on a defined monthly payment and defined timeframe. The term of the loan can range from one year to as long as ten years. The interest rate is often fixed too, though there are also variable rate loans.

Although personal loans are often compared to credit cards, the main difference is the fixed term and payment schedule. Credit cards are revolving accounts without a defined timeframe for repayment of the entire lump sum.

What Are Personal Loans Used For?

As it’s name suggests, personal loans are used for a variety of personal reasons such as:

  • Home improvement
  • Educational costs or tuition fees
  • Big ticket purchase – such as a car, fridge, wedding, holiday
  • Medical Expenses
  • Consolidating Debt

Types of Personal Loans

There are two main types of personal loans – secured and unsecured loans.

Secured – A secured loan is where an item is used as a ‘collateral’, and provides security for your debt. In the event that you are unable to repay your loan, the lender can sell your collateral to recover the amount of your debt.  Some examples of collateral are your home, car, stocks, bonds and cash.

Unsecured – An unsecured loan is a loan where the lender agrees to lend you money, without requiring any form of collateral for security. This type of loan depends exclusively on your ability to repay the debt, so you will need to provide proof of your income.   Since the risk is higher to the lender, the interest rate of an unsecured loan tends to be higher also.

Benefits of Personal Loans

  • You can borrow amounts up to $100,000 depending on your circumstances
  • You can choose a set timeframe to repay the loan – this can be up to 10 years
  • The fixed loan amount means you won’t overspend, or make impulse buys
  • Generally, the rate on a personal loan is lower when compared to credit cards
  • Peace of mind – knowing with certainty the repayment amount of your loan, if you have chosen a fixed rate loan.
  • Once the end of the loan term is complete, you will have fully paid off the debt.

Disadvantages of A Personal Loan

  • The loan amount generally can’t be increased
  • There is an obligation to meet your repayments regularly
  • If you decide to repay the entire loan amount early, there may be an early repayment fee.
  • Missed payments can result in high penalty fees, and/or litigation if you miss payments.

Things To Consider When Choosing a Personal Loan

How long is the term of the loan?

A longer-term loan will result in a smaller monthly payment, but more interest paid over the term of the loan.  A shorter-term will mean a larger monthly payment, but less interest paid over the term of the loan.

How much can I borrow?

Stick to the amount you require, and resist the urge to take the higher amount the bank may try to offer you. Factor in the monthly fees and application fee into the loan amount.

Should I choose a secure or unsecured loan?

Secured loans give you a lower interest rate, but you risk the loss of your property if you can’t meet the repayments. Unsecured loans don’t have this problem, but have higher interest rates as a result.

Is the interest rate fixed or variable?

A fixed rate will give you certainty on the repayment amounts, whereas a variable rate will fluctuate according to the money markets.

Are there any fees associated with the loan?

Personal loans have early repayment fees, application fees and monthly loan fees.

The low interest rate, certainty of a fixed regular payment and fixed limit of a personal loan make it an attractive choice for financing your personal needs. Make sure you compare rates and terms of various lenders before making your decision, and beware of any unscrupulous lenders.