Published in October 27, 2021
Do you want access to finance, but you’re not sure what your options are? You might want to consider a personal loan.
If you are wanting access to finance, there are numerous options available to you – credit cards, Buy Now Pay Later (BNPL) platforms and personal loans, among other options. Today, we’re going to cover how do personal loans work?
A personal loan is when you borrow money, either from a bank, non-bank lender, credit union, etc, to pay for something personal. You take out a loan under the agreement that you will repay the amount you borrowed, often with interest and fees on top.
Personal loans can be used to pay for personal expenses and purchases, such as holidays, home renovations, a car, medical expenses and more. They offer more flexibility than other loans, such as business loans and student loans, which can only be used for specific purposes.
Furthermore, you might opt for a personal loan over a credit card, if you want to borrow a larger amount of money and repay that amount over a longer period of time. According to MoneySmart, the typical repayment period is between one and seven years.
There are different types of personal loans. Below, we’ve listed a few of the most common:
When you take on a personal loan, you will need to repay the amount that you borrowed, typically with interest and fees on top. You’re not expected to repay the amount all at once but in smaller and more manageable instalments. These are known as repayments.
Depending on your circumstances, these repayments might be weekly, fortnightly, monthly or quarterly. For loans with terms longer than 30 days, the repayments are often on a monthly basis by default.
There are a few things that can affect how much your repayments will be. These include:
All of these ingredients are used to determine your repayments. Whilst the exact formula banks and lenders use to calculate your repayments isn’t publicly available, and each calculation will be unique to your personal situation and loan conditions, repayment calculators can help you get a general idea of what your repayments might look like.
Applying for a personal loan is quite simple. Nowadays, you don’t need to go into your bank to apply for a bank – you can do everything online. However, the tricky part isn’t applying for a loan, but finding the right loan for you.
Before you apply for a personal loan, there are a few steps you should take. This includes checking your eligibility and comparing the options on the market.
Gone are the days when only banks offer personal loans. Today, you can get personal loans from banks, non-bank lenders, credit unions and more. Whilst each of these companies might have specific criteria you will need to meet in order to be approved for a loan, there are some general criteria that you will likely need to meet to be eligible for a personal loan.
The general criteria to be eligible for a personal loan is:
Some of the more specific criteria you will need to meet may include minimum income, credit score and more.
There are many different personal loans available on the market. Before applying for a loan, it’s a good idea to compare your options to ensure you can get the best deal on the market.
Here are some things you could consider:
While we at Tippla will always do our best to provide you with the information you need to financially thrive, it’s important to note that we’re not debt counsellors, nor do we provide financial advice. Be sure to speak to your financial services professional before making any decisions.
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