Personal Loans - Finance Article

A Personal Loan also known as Consumer Loan, can be used for any specific personal need. A personal loan can be used to consolidate existing debts, pay for holidays, school fees, home improvements/renovations and car repairs etc. Normally a personal loan is an unsecured debt meaning that there is no asset required to act as collateral for the debt. Generally your credit history and ability to repay the debt form the basis for approval on an unsecured personal loan.

Personal loans are used for to purchase items which have no real lasting benefit or value. Make sure you really need or want the item your are intending to buy using a loan. You could still be repaying the loan well after the benefit has been and gone.

Working out the true cost of a loan to enable you to compare it with another is often difficult. Most people just use the annual percentage rate (APR) of the personal loan to compare different loans. This is a good start. However, the APR does not take into account other costs like establishment and ongoing fees. The APR could either relate to a Fixed Rate or a Variable Rate. A Fixed Rate means that the APR is fixed for the term of the loan whereas a Variable Rate can change at any time the bank increases or decreases its rates.

From 1 July 2003, amendments to the Uniform Consumer Credit Code (UCCC) require lenders to provide Comparison Rates to make it easier for the consumer to compare one loan with another. A Comparison Rate takes into account any costs/fees associated with a loan including the APR, the loan establishment fee and any other upfront or ongoing fees that are payable under the loan contract terms, over the life of a "model loan". This makes it easier for the consumer to compare the real cost of different loans.

Always look at the Comparison Rate when making a decision about applying for loans. In some cases, a higher APR with little or no fees could actually end up being cheaper than a loan with a lower APR and high fees.

With consumer loans, in most cases the interest is calculated daily on the balance of your loan and charged monthly. Bearing this in mind, weekly payments for instance will actually reduce the amount of interest you pay over the life of the loan. Another way to pay less interest, and pay off the loan earlier, is to make additional payments. Even an extra $20 per week adds up - that equates to $1,040 over 12 months off of the principal of the loan and also a reduction in the interest being charged accordingly.

Things to remember:

Consider your current financial situation - can I afford this?
Check Comparison Rates for the cheaper loan
Is it a Fixed Rate or Variable Rate loan?
Look for other fees and charges including termination fees
Try paying a little more than the minimum payments
Make your payments weekly or even monthly in advance
Always and we stress; ALWAYS read the Terms & Conditions

I'm ready to check out some Personal Loan offers!