Paying off Your Personal Loan

Security may be required for some large loans, which means if you default on the loan, the goods secured can be sold, or the guarantor could be asked to pay off the loan. Interest rates for personal loans are usually higher than for mortgages. An increased interest rate may be levied, if you are late with or default on a personal loan payment. You should check whether such a condition is included in your contract and when it can be applied.

All loan contracts should contain the following information: the annual interest percentage rate and the default rate, the calculation of interest charges, the total amount of interest charges payable, the amount of credit and credit fees and charges, and insurance required by the contract.

Some car dealers offer finance as part of the sale, provided by a finance company the car dealership has a commercial arrangement with. However you should be careful – you may not be getting the best deal. Do some research, before you start looking for a car, on what reputable financial institutions are offering.

There may be other options associated with car loans. You can lease the car, which means the ownership of the car is retained by the finance company and the car is leased to the ‘borrower’, who makes a monthly leased payment for an agreed period of time. At the end of the lease period, there is usually an amount left owing called a residual on the loan, which you must pay if you want to own the car. Otherwise the ownership remains with the finance company, who will usually sell the car to pay out the residual owing under the lease. If the proceeds of the sale are insufficient to cover the residual you will be liable for the balance. Hire purchase is another option, where you will own the car at the end of the contract. Each installment paid will include an amount for the credit charged on the loan.

You should think carefully about going guarantor for someone who is taking out a personal loan. As guarantor, you are agreeing to pay the lender if the borrower defaults on the loan, and you are liable to pay the whole amount due under the loan, including any enforcement costs. Most financial institutions will require that the person wishing to act as guarantor obtain independent legal advice before entering into the guarantee, to make sure they are aware of their rights and obligations.

Before going guarantor, you need to fully familiarize yourself with the terms and conditions of the loan contract, and ask about anything you do not understand. As a guarantor, you make not be able to make installment payments, and may instead be required to pay out the loan in full.

For information on personal loans go to http://www.creditworld.com.au/personal-loan.html.

Summary

• A personal loan is a loan to an individual borrower for an agreed period.
• Interest rates are fixed and usually higher than mortgage rates.
• Be careful of finance offered by car dealerships – shop around for the best deals.
• Car leasing and hire purchase are also available.
• Before going guarantor, make sure you know all your rights and obligations.

Article correct at its author date: Jan 2007. Copyright Virtual Office Space, Any unauthorised reproduction of this article will be prosecuted to the full extent of the law. Credit Cards Australia.

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