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What Can A Personal Loan Be Used For?
●October 13, 2021●4 minute read
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From urgent car repairs to vet bills, expenses typically show up when you least expect them. If you don’t have the funds you need to cover unexpected expenses, taking out a personal loan can be helpful.
In this guide, we give a quick rundown of what a personal loan is, what you can use it for, and how to apply for one.
What is a personal loan?
A personal loan allows you to borrow money and repay it, plus interest, over an agreed period of time (i.e. the loan term). The interest rate on your personal loan will be determined by a range of factors, such as your credit history and expenses.
There may also be extra fees when taking out a personal loan. These will depend on the lender, so make sure you check what fees apply and how much they will be. Fees can include application fees, monthly service fees, missed fees, early payout fees, and extra repayment fees.
To ensure a personal loan is right for you, there are a couple of things you should consider before taking one out.
Here are some questions to ask yourself before applying for a personal loan:
- What is the interest rate?
- Is the interest rate fixed or variable?
- What are the fees?
- What is the loan term?
Once you’ve considered the above and found a lender that best suits your needs, you can be on your way to securing a personal loan.
What’s the difference between a secured and unsecured loan?
There are many types of personal loans, so it’s important to choose one that’s best for you. Generally, there are two types of personal loans: secured personal loans and unsecured personal loans. Here’s a quick overview of what each type means:
Secured personal loan
This type of loan requires you to provide an asset as security. This means if you’re unable to repay the loan, the lender may sell your asset to cover their losses. Because this type of loan comes with added security, it typically comes with a lower interest rate.
Unsecured personal loan
With this type of loan, you won’t need to provide an asset as security. However, due to the reduced security this type of loan offers, this loan may come with a higher interest rate.
What can I use a personal loan for?
The need for a personal loan can differ depending on your current financial situation and individual needs. Most commonly, personal loans are taken out to cover bills, debts, and discretionary expenses. We’ll go through some more specific examples of each.
Bills, like dental and medical bills, can show up when you least expect it and personal loans can be a great way to help you cover the cost.
There are also varying types of debt that can be paid off through personal loans including student debt, collection agency debt, credit card debt, and tax debt. If you have a high-interest rate on your current debt, taking out a personal loan can be a great way to consolidate your debt into one lower rate – this is known as debt consolidation.
Taking out a consolidation personal loan can also be a great way to lower your total loan repayments by rolling them into one simple loan. If you have a car loan or student loan, a personal loan could be used to consolidate these expenses. If you have loaned money from a family member or friend, a personal loan may also help you repay that loan back to them.
Numerous discretionary expenses are also popular reasons for taking out a personal loan. Home improvements such as buying furniture as well as wedding costs, holidays, divorce, moving costs, funerals, and pets are some of the common expenses. The many costs that come with buying a car such as car registration is another popular usage of personal loans.
Emergencies can happen when you least expect it. Your car breaking down or an emergency home repair can be an unwelcome surprise for many individuals and a personal loan can be a great way to cover these unplanned costs.
To sum up, personal loans can be a handy way for you to make a big expense, pay off multiple debts, or repay an existing loan. However, it’s important to consider your personal circumstances, needs, and financial situation when deciding if a personal loan is right for you and your financial situation.
How do I apply for a personal loan?
Generally, applying for a personal loan is a quick and easy process especially with online lenders. With the right lender, your application can be completed in just a few steps and the money in your account within minutes.
However, it’s important to check your eligibility before applying for a personal loan. For many lenders, to qualify you must:
- Be over the age of 18;
- Be an Australian citizen or permanent resident;
- Have received a regular income (for the last 90-days);
- Have internet banking set up;
- Hold a direct contact number and email address.
For your application to be processed, you’ll typically need to provide the lender with some information such as:
- Personal information (i.e. name, address, DOB);
- Email address and phone number;
- The reason for your loan;
- myGov details (if you receive Centrelink benefits);
- Online bank account details and employment information.
Once you’ve checked you’re eligible for a personal loan and provided the relevant details to the lender, you should be well on your way to finding out if your personal loan is approved.
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Written by Laura Parcell
Laura Parcell is a Public Relations Specialist and Content Writer at Jacaranda Finance. She has a Bachelor of Business (Public Relations)/ Media & Communications with Distinction from the Queensland University of Technology.