Loans are for paying holidays, wedding, home renovation, furniture, appliances, new car and medical aid. Since these are for personal requirements, the Loan is known as Personal Loan. There are several types available. List includes:
Secured Loan: You have to deposit security asset to borrow money from the lender. This asset may be your car, house or jewellery as a guarantee. You would receive your money from the lender. If you fail to repay the lender he would take possession of your asset. Usually, banks have lower interest rates on personal loans.
Unsecured Loan: Since you have no car or house, you cannot deposit for security. You have to convince the lender using your pay slips. Prove that you earn enough to repay the loan. If this is your first time, then find a guarantor. The lenders charge higher fees and interest rates compared to secured loans. Penalties for late payments are high. Lenders take legal action if you fail to repay.
Student loan: Many lending institutions provide student loan for various educational expenses. On the day, the student takes out the loan the interest accumulates so repayment is high.
Overdraft/Line of Credit: This personal loan is for an unexpected emergency when you overdraw your bank account. Your bank pays the agreement amount. You have to pay interest on the amount you use. This interest rate is higher than other types of personal loans.
Debt Consolidation: This helps you to repay your debts quickly. All your debts are combined into one personal loan and interest repayments are saved. You can pay all the debts in one regular payment. You do not have to make several payments throughout the month. You might slip back into spending too much and accumulate more debt.
Interest Rates of Personal Loans: You have two major choices to pay your interests – fixed and variable interest rate. Fixed interest rate is locked in for the life of Personal Loan. Fixed interests are higher rates and fees than variable rate personal loans. Interest rate does not change and provides a better budget. Variable rate loan fluctuates at any time during the term so interest goes up or down. Variable Interest rates and fees are lower than fixed interest personal loan.
Personal Loans are available mostly in banks at a lower interest rate. There are other organisations like LIC, PPF that provide loans too. Always shop around to find the best lender.