Time to read : 2 Minutes
Making A Personal Loan Work For You
When no other specifically tailored loan seems to fit your financial needs, getting a personal loan can offer benefits
But, like any loan, it needs to be responsibly managed so you don't cop unnecessary interest payments and late payment penalties.
A personal loan application may give you a buffer to help you ease cost of living pressures, although you probably should consider other steps (trimming the fat from your budget and reducing your spending) first.
Here are some potential pros and cons of personal loans.
Possible pro: Lump sum loans
A loan in one lump sum can help with a large purchase. It may also be used to consolidate debt and, because you get a fixed interest rate and a predictable monthly repayment schedule, you can budget accordingly to help stay on track.
Possible pro: Access to fast funding
The approval times for personal loans can be fast - and that makes them handy for situations when you need to get your hands on money in a hurry. Depending on the lender, some promise to deposit funds as quickly as the next business day.
Possible con: Inflated interest rates
Keep an eye on the interest rate. Some lenders hawking personal loans have interest rates that could leave you with a definite debt hangover.
Possible pro: Collateral clauses
Unsecured personal loans don’t come with the demands for collateral and multiple hoops to jump through. That means less risk of you losing your car or some other valuable asset if you can’t pay the loan on the agreed terms.
Possible con: False sense of security
Is getting finance approved always a good thing? Remember, you have to pay this money back. And it’s far from free.
Just because you can access a personal loan, your decision to take the money should be carefully considered. If you do default on payments, you may not lose any assets, but you will carry the credit rating scars, making future borrowing much harder.
The bottom line
Depending on the interest rate and loan term on offer, a personal loan may help solve a short-term financial issue.
Make sure you shop around for the best possible home loan to suit your needs and make sure you have crunched the numbers so you know repayments will fit in your budget.
You can use a personal loan for everything from home improvements to holidays, but should you? If the roof is leaking? Yes.
Repaying a loan with interest if you have no other option to source the finance needed could protect your home from further costly repair bills.
Buying a 98-inch 4K TV and Playstation 5? Maybe no. Or if you’re planning on putting a holiday on credit, think again. Life might not seem so relaxing when you’ve got years of monthly repayments to make.
Go deeper:
How to choose the best personal loan rate for your finances
Financial disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
