Maybe it’s time to upgrade your set of wheels. Maybe you’re looking to turn your back patio into that party balcony you’ve always dreamed of. Or maybe you want to check that European holiday off your bucket list. When you’re looking at a major life purchase like these, there’s a possibility you’ll use a personal loan to help you get there.
Before you apply for a personal loan however, it’s best to understand all the factors involved. Here are the top things to study up on before you apply.
How do they work?
The long and short of it is that you borrow money from your bank and then pay the money back in a series of instalments, along with any interest and fees.
Unsecured vs secured
There are two main types of personal loan. Secured personal loans are attached to an asset that your lender can repossess if you aren’t able to make the loan payments. The asset is often the thing that you buy with the loan, like a car for example, but can also be another relevant item with similar value. Sound scary? Don’t stress too much, repossession will usually only occur in the event of a serious default on payments. Meanwhile, unsecured loans don’t use collateral, but interest rates can be higher. Discuss with your bank what your needs are and which type works best for you.
Understand the interest rate
Then it’s time to get an understanding of interest rates. Finding the right loan often comes down to finding the right rate, paired with low fees. A lower rate could mean a lower cost of credit, but make sure you check out a comparison rate first to gauge the real cost of credit. You could end up paying back less overall compared to a loan with a higher rate. It’s also important to check if the interest rate is fixed or variable. If it’s variable the rate can go up or down which can affect your repayment amounts, but for a bit more certainty in your repayments you might prefer a fixed rate loan. Keep in mind that with a fixed rate loan you won’t benefit from the times when the interest rate decreases, like you would with a variable loan.
Get the feel for your fees
Next, understand all of the different fees that can come with a personal loan. Fees can include:
- Upfront fees, such as application or establishment fees, which can be charged when your loan is approved.
- Late payment fees.
- Early repayment fees, which can be charged when you make additional repayments or pay out your loan early.
- Ongoing administration charges, such as account keeping fees.
Find a loan that helps you save as much as possible on fees. For instance ING doesn’t charge early repayment fees or ongoing monthly and annual fees on its Personal Loan. For customers with an existing Orange Everyday transaction account – or who request one as part of their personal loan application as their funds disbursement account – ING will waive its Personal Loan establishment fee.
Be the early bird
Whenever you can, consider whether you can pay off your loan early so you may pass less interest overall. Though some banks charge early repayment fees for making additional repayments on their fixed rate personal loans, ING doesn’t charge them so there won’t be any surprises for paying back early. Note that additional payments made cannot be redrawn.
Study up before you get started
Above all it’s important to make sure you have read and understood the contract your bank gives you so you fully comprehend the terms, fees and interest rate for your loan.
To get the low down on your loan, it’s best to get in touch with your bank. Find out more about ING’s personal loans and how they can help you reach your goals here.
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