Whether you need to make a large purchase, complete home renovations/repairs, or pay off debt, a personal loan can be a great option. Of course, all loans are not created equal, so you need to figure out which personal loan option is right for you. This guide will give you a few important factors to consider when getting a personal loan.
1. Secured Versus Unsecured
Deciding whether a secured or unsecured loan is best is one of the most important factors to consider, so you need to know the difference.
With a secured loan, you will be using an asset of some sort as security to get the loan. For example, if you are taking out a personal loan to buy a car, the car will be used as security on the loan. If you default on the loan, the lender has the right to take the car to sell to cover the loan balance.
An unsecured loan is a type of loan where no collateral or security is needed. This type of loan is considered a higher risk for lenders, so you may have a higher interest rate attached to the loan.
2. Loan Term
In many cases, you will be able to negotiate or choose the terms of the loan with your lender. The length of the term is another important factor you need to be concerned with for various reasons.
A longer term may help you finance the loan amount longer, which will help reduce monthly payment amounts. However, the longer the term, the more interest you will be paying over the course of the loan term, which can make how much you pay in total much higher.
If monthly payments are your main concern, a longer term can be beneficial. If you are more concerned with interest over the length of your loan, opt for a shorter term with higher payments.
3. Payment Flexibility
Finally, consider securing a personal loan with a lender that offers some flexibility in making your payments.
Although monthly payments will be required, the lender should also allow additional payments of lump sums and an option to pay off the loan early without penalties. This flexibility will allow you to pay off your loan in a more efficient manner without the worry of stress and added fees/costs.
Personal loans can be confusing at times, but help is available. By understanding these factors, you can find a personal loan that works for your specific needs.