If you’re interested in taking out credit, you may have been advised to take out a personal loan. But what makes it “personal”, and do you have any other options?
We have a look at what a personal loan is, which other loans are out there, and we explain how you can apply for a personal loan today.
Tip: Click here if you’re ready to get started with a personal loan immediately.
The personal nature of a personal loan
If you need to take out a loan for home renovations or medical expenses, you will likely be directed towards a personal loan. But what makes a personal loan personal?
When you take out a personal loan, your creditor doesn’t enquire what you will use the loan for. The fact that these loans can be used at your own personal discretion is exactly why they are named the way they are.
If you fulfil the basic requirements for a personal loan, you will be approved for it, regardless of whether you plan to spend the money on building a giant dog house or pay for your niece’s extravagant wedding.
However, it’s not always wise to go into debt for luxury or unnecessary expenses. Make sure you know the difference between good and bad debt before you take out a personal loan.
Which other loans are there?
Loans can be divided into two clear categories, based on whether they are tied to an asset or not. There is a clear distinction between the two:
- Secured loan: These loans are linked to an asset, such as a car or a house. If you default on your loan, your creditor will be able to claim back their loss by taking ownership of your asset and putting it up for auction.
- Unsecured loan: This specifically refers to personal loans, because it’s not linked to an asset and your creditor will not know how the money was spent. They will not be able to use any asset as security if you default, so they have a bigger risk.
If you decide to take out a personal loan, you will likely pay a higher interest rate than you would for a secured loan because of the risk the creditor needs to take.
However, in return, you can use the money for anything you choose and your creditor will not have a say in the matter.
How to apply for a personal loan
Before you apply for a personal loan, you need to make sure you’re in the best possible position to both be approved for it, and to be able to pay it back.
Make sure you earn a steady income, that you have a good credit score, and that you plan to use your loan towards good debt and not bad debt. Once you’re also certain you can afford a personal loan, you can go to this page and fill out the form to apply.
You will receive a call from a qualified financial adviser who will guide your through the application process and let you know whether you qualify and how they can help you further.