What is a personal loan?
A personal loan is something that is taken out to fulfill a specific purpose, for example, purchasing a new car, funding a holiday or by consolidating debt. Dependant on the type of loan, they are generally either an unsecured loan or secured loan.
You will agree with a lender to repay the loan over a fixed amount each month. Loan terms can vary but typically they fall between one and five years.
Personal Loans Summary
A personal loan is an amount of money that is repaid back each month over an agreed loan term. The repayment amount will contain both interest and capital.
Personal Loans can be:
- Unsecured or secured against an asset, such as a house.
- Repaid over a fixed term agreed with your lender
- Your credit score can determine the interest rate you are offered
Will applying for a personal loan affect my credit rating?
Applying for a personal loan through Monevo Australia does not affect your credit rating during the initial search. However, it is important to understand if you are approved for a loan offer then, a lender may go on to perform additional checks. They do this to understand more about you and your ability to repay the debt.
Once your personal loan offer has been approved, your lender may charge you a one-off administration fee for processing the loan. This fee generally covers the costs incurred to process your loan. If you decide to repay your loan early then the lender may also charge you an early repayment fee.
Each lender is very different so be sure to understand what fees are incurred upfront and whether there are any fees if you decide to repay early, overpay.
Personal loan interest rates
Interest rates are generally determined by your credit rating and how lenders view you and your ability to repay a loan. Based on this, the advertised rate is not always the rate you will see.
Variable Rate Loans
A variable rate personal loan charges an interest rate that is subject to change. This means that your loan installments may change during the lifetime of your personal loan.
Fixed Rate Loans
A fixed rate personal loan charges a fixed rate of interest. This means that your loan repayments will not change for the entire term of the loan.
If you are looking for stability in your loan then these are a good option. A fixed rate personal loan offers stability. You know exactly how much your repayments are each month and can take this into account when budgeting.
How can I spend my personal loan?
As long as the lender has agreed to fund the personal loan, you are welcome to spend it on whatever you need to. Commonly borrowers will use a personal loan to:
- Buy a new car
- Make a home improvement
- Book a holiday
- Pay for a wedding
- Consolidate existing debt
The lender might ask you what you plan to use the loan for, but this is simply to ensure they consider you to be credit worthy as a borrower, and you can repay the money on time and in full. It is completely up to you how you would like to spend the money, as long as you are confident you can afford to make repayments every month for the time agreed upon.
Is a personal loan right for me?
Getting a personal loan always depends on your financial circumstances and whether you can afford to make monthly repayments or not.
If your income allows you to have a bit of spare cash to spend every month, without affecting your ability to pay for things like your rent or mortgage payments, then getting a personal loan might be a good idea for you.
If, however, you are struggling to afford regular payments every month or have already got existing debt to repay, it might not be the right time for you to take out a personal loan. Taking out a loan if you know you can’t pay it back can lead you to spiralling into debt, damaging your credit rating and being denied access to financial products in the future.
Advantages of a personal loan
- Makes it easier to afford an expensive purchase
- Spread the cost over a period to suit you
- Can also help to improve your credit score