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Seven things you may not know about personal loans

If you’ve been mulling over taking out a personal loan for something you think doesn’t quite fall under the umbrella of being worth the bank’s time – you may be in for a surprise.

Personal loans aren’t just for cars and caravans (as we’ll discuss) and may save you time and money in a lot of different ways.

Check out some more tips below…

Personal loans aren’t just for cars and caravans

When people think of personal loans, they think that it’s used to buy a car or maybe a recreational vehicle like a caravan or a jet ski. Personal loans can be used for a variety of purchases, home renovations, holidays, weddings, appliance upgrades, elective surgery, and more. You don’t have to buy something tangible with a personal loan to make a lender or a broker tick the box of approval, either.

You can get unsecured personal loans

You can apply for unsecured personal loans – that is, a loan that isn’t tied directly to an asset or a purchase such as those cars or caravans – which gives you greater flexibility on what your personal loan will fund. The caveat is that unsecured loans (not just personal loans, but all kinds of loans) will attract higher interest than secured loans due to the nature of how they’re structured – no collateral means higher risk on the part of the lender.

You can take out six figures on a personal loan if approved

Though not wholly common, you can take out a six-figure personal loan, provided you are able to pay it back on time and in full without going into financial hardship yourself. This could be for big-ticket items or complete renovations – learning about a $100,000 personal loan is easy.

Just don’t spend it on one-way trips on the light rail or a hunger buster box at Henny Penny.

Personal loans are more cost-effective than credit cards

In almost all cases, personal loans are more cost-effective than credit cards. Credit cards are indeed like 7-Eleven; they’re around when you need them in a pinch, but you are paying extra for the convenience. This could be in the vicinity of 20+%p.a. in interest, which can balloon out to thousands if not tens of thousands in interest if you don’t pay off your credit card balance in full each month.

Loan periods end when they say they end

Credit cards are a type of revolving credit – there’s no “end date” for when you finish paying off your credit card. It keeps sucking down an annual fee even if you keep your credit card in a drawer all its life. A personal loan term will end when you make all your repayments within the loan term – this could be three years or five years – even more. (The longer the term, the more interest you pay.) But the upside is that every repayment gets you closer to zero.

Personal loans help consolidate your debts

If you have lots of little credit card debts that you can’t seem to get on top of, a personal loan can be used as a consolidation loan. That means rolling all your debts over into the loan for significantly less interest and one repayment. It can help you get on top of your finances and even improve your credit score over time. It is also a better alternative to credit card balance transfers.

Personal loans are an investment in yourself

Some people might take to Kickstarter (or Kickstaller) to fund their passion projects, but personal loans can be an investment in yourself. As the old adage goes: how do you turn $50 into $500? You fill up your car with petrol and drive to work. Of course, you’d need a car first; or a degree for the higher paying job; equipment to do the job properly; and so on. It can be used as seed capital for a bigger self-improvement project. There’s really no limit to what a personal loan can help you achieve.

The finance information here is general in nature and should not be a substitute for professional advice.