Personal loans can be taken out for periods as short as three months, or as long as 20 years. Student loans are an exception to this, and you can read more on student loans below. While secured personal loans and car loans can run for terms of up to 20 years, unsecured personal loans generally have a shorter term. Because they are riskier for lenders, they are usually 10 years or less
What is a payday loan?
A payday loan is a small, short-term, unsecured loan, where the repayments coincide with the borrower’s payday. Payday loans are typically for small amounts and incur higher rates of interest.
Payday loans are usually used by consumers who are hit by sudden and unexpected expenses. Payday loans are not a sensible long-term solution for getting out of debt, given their high interest rates and short time frames.
What is a peer-to-peer loan?
Peer to peer (P2P) loans are a type of loan where people borrow money directly from individual investors, instead of applying for a loan from a bank.
P2P lenders are legally required to give borrowers the same disclosure statement and client agreement as banks and other lenders.
How to apply for a personal loan:
- How much can you afford to borrow?
Write a budget that includes all your living expenses. Once you know how much you can comfortably afford in repayments, you’ll be able to gauge how much you can afford to borrow.
Don’t forget that a loan costs more than just its repayments – there are also other fees and charges. Loan establishment fees can be around $250, and there can be additional monthly fees.
Some banks have a minimum amount you can https://onedayloan.net/payday-loans-ri/ borrow, such as $3,000. And many will offer you a larger loan than you need. But stick to the amount you want to borrow.
We have a number of calculators on our website to help you plan your budget. For more information, click this link.
- How long do you want your loan repayment period?
A shorter loan comes with higher monthly repayments. A longer loan costs more in interest payments. Choose the shortest loan term that you know you can comfortably afford.
Some lenders charge an early repayment fee. Keep this in mind if you intend to pay off your loan early.
Make sure you check the fine print and ask questions before applying , so you are fully aware of the loan’s true cost.
- What type of loan do you want: secured or unsecured?
Secured loans offer a lower interest rate, but you risk losing the property you put up as security if you don’t make all the repayments. Unsecured loans have higher interest rates, so they can cost you more.
Whichever type of loan you chose, if you miss your repayments, it can affect your credit rating. This will make it harder for you to secure loans, including mortgages, in the future.
- Do you want a fixed or floating interest rate?
A fixed interest rate gives you the certainty of knowing what your repayments will be. But there’s the risk that if interest rates drop significantly, you’ll be left paying a higher rate.
Floating rates are usually higher than fixed rates, but do move up and down, meaning you’ll pay less if rates drop.
Be wary of introductory offers that start with a low interest rate but switch to a high rate after the introductory period. You want to pay a low amount of interest over the entire life of your loan.