Whether it’s for consolidating debt, saving for that much-needed semester break vacay or paying those extra expenses that come with being a student, a personal loan can be a good way to inject some much-needed cash into the study equation.
A personal loan is different from receiving the best private student loan in the sense that it can be used for things like debt consolidation or buying a car, whereas student loans are used for education needs like tuition fees and laptops.
They allow you to borrow the money you need now and pay them back in ongoing instalments, as well as fees and interests.
But how do you decide which personal loan is right for you?
Let’s take a look at your options below…
Secured loan or unsecured loan: what’s the difference?
Personal loans come as either unsecured or secured loans. Secured loans typically come with lower interest rates than their unsecured counterparts. However, with a secured loan, you will be expected to provide security for the loan (e.g. a car). Therefore, if you find yourself unable to pay back the loan, the lender may choose to repossess your vehicle to make up for the missed payment.
With unsecured loans, the loan provider doesn’t require an asset as security. However, the interest rates on repayment are typically higher and you can still be taken to court if you are unable to pay back the loan. Certain loan providers will offer individuals personal loans with lower interest rates if you are able to provide the lender with a guarantor (someone who can pay back the debt if the recipient cannot repay it).
Variable interest vs. fixed interest rate: what are your options?
Another consideration is whether you receive a loan with a variable or fixed interest rate. With fixed interest rates, the interest rate on repayment stays the same over the period of the loan. For many, this makes it easier to plan their repayments as they know exactly how much interest will be with every repayment. However, you may not experience the same benefits of a variable interest rate should the market interest rates decline.
This is where variable interest rates come in. A variable interest rate can fluctuate depending on the market interest rate. Variable interest rates can also be affected by other financial factors on your end. You should also look at comparison rates when deciding on whether a fixed or variable loan is the right choice for you.
Charges & fees
Fees will also apply between lenders and loan options. Fees that all loan recipients should be aware of include monthly and annual service fees, applications fees and missed payment fees. Some loan providers may also choose to charge an early exit fee or early repayment fee. It’s always a good idea to closely read and examine the fine print when deciding which loan is right for you.
The term of your loan
How long will you need to borrow this money for? Some short term loans come with lower interest rates than long term loans. When it comes to long term loans, you may have to pay less with each repayment but you will typically pay more interest over the loan’s duration.
Are you able to pay back the loan?
You have to decide whether you are able to pay back the loan. You may not be in a financial position to pay back the loan in which case you should consider surpassing on a particular loan you may have been considering applying for. There are different tools at your disposal that can help you decide on the right loan for you, including loan comparison tools and estimated repayment calculators.