By definition, a personal loan is for an individual for personal use. This type of loan has a smaller amount compared to a mortgage and usually it is used to purchase valuables such as a vehicle, for home renovation, for travel, for wedding, and other important expenditures that is needed as soon as possible.

A personal loan can be taken out in order to consolidate other loans into a single one which is known as a debt consolidation loan where it involves the overdrafts, store card deficits, credit card, and overdrafts as well as payday loans which will be charged with a higher interest rate.

Consolidating all of these can give you a cheaper interest rate. Usually, personal loans have a shorter term than a mortgage has and instead of paying it for a decade or more, your monthly installment is usually spanning from a year to a maximum of five years.

There two types of personal loans that you have to learn, the secured and the unsecured loans. A secured loan is usually backed with a collateral, or an asset that you can present to the lender if you decide to default your loan. This asset can either be a real estate property such as house, a condominium unit or a vehicle. Usually, a secured loan has lower interest rate and has better overall terms.

Unsecured loans meanwhile do not have a collateral that the lender can get if you defaulted the loan, but the lender can recoup the money in a legal way because this type of loan is riskier than a secured loan that is why it has a higher interest rate.

Now that you’ve learned enough with personal loan, maybe it is time to weigh in the pros and cons that comes with it so that you can make the right decision once you are in the bank signing the contract courtesy of the best loan specialists Australia has.

Pros of personal loans

  • There are many benefits that you can get from personal loans. First is the flexibility of its usage. Personal loans are multipurpose which can be used for different purposes like medical expenses, for your travel expenses, for hefty purchases like electronic gadgets and jewelry, and also house and vehicle improvements to name a few.
  • Personal loans are very easy to avail, in fact, there are some instances that an applicant can get the loan within 24 hours which is the best option if you are looking for a fund to be used for emergency purposes. It is also very easy to apply because of its minimal requirement that does not necessarily require a lot of documents compared to other types of loans.
  • Lastly, it has no collateral or any security as a requirement because this type of loan only involves a small amount of money and it also has a shorter tenure compared to other loans.

Cons of personal loans

  • Despite its benefits, Loans For The Self-Employed come with high-interest rates knowing that it does not require any collateral and security knowing that the lenders regard this type of loan as a high risk.
  • Also, it has no partial payments as the majority of lenders do not allow this which means that you have to end up paying the loan for the entire tenure of it.
  • Also, this is a requirement to have a good credit rating as this kind of loan is very risky, the majority of lenders always insist on their customers to maintain a good credit score that is why it is very risky especially if you fail to pay one of your monthly dues or you paid late.

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