Types of Personal Loans

Before taking out a personal loan, you should consider if this is your best option. Maybe it might make more financial sense to save for your purchase. Or maybe you could buy it on your credit card, if it is a fairly low-cost item. If your income is low or uncertain, minimum monthly payments on credit cards may be lower than for a personal loan. Interest rates can be high so you will need to consider what different financial organizations offer. You should not take out loans of 20% or more – this can lead to financial disaster and possible bankruptcy.

The personal loan market is fairly competitive, so try to negotiate conditions that are suited to your financial circumstances, including the ability to make extra payments. Also the type of personal loan can be important. As well as general purpose personal loans there are business loans, car loans and payday loans. Sometimes an ordinary personal loan is the best; other times you may be off choosing a specialist loan.

Some loans are considered short-term, which in theory means for a period of up to one year, but many short-term loans are for six months or less. These are often for low amounts, so collateral is usually not required. It is important to keep up with the repayments though, as it is possible that the lender could repossess the product you bought with the loan, or start debt collection actions against you, possibly taking you to court. A default of a personal loan can lead to your credit rating being damaged, making it hard for you to borrow money in the short to medium term.

A business loan can be large and so a lender will want to satisfy themselves that you can repay the loan. They will probably look at your credit history, your ability to generate substantial cash flow, and collateral such as assets. The occasional late payment on a previous loan will probably not affect your loan application, but if you have been consistently late with payments, the lender may consider you a bad risk and refuse the loan.

If you have just started a new business, and you have no previous business experience, you may have to justify to the lender, why you think the business has a good chance of being successful. If you have relevant experience in the industry at a senior level this may help your cause. For example, if you are starting up a freelance IT business, and you have worked for a number of years for a company as a senior computer programmer, you should emphasise this in your loan application.

Generally, lenders are not willing to put in 100% of the amount of money you need to start or grow your business. They like you to start with some capital. This can demonstrate that you are good at generating income, which any business needs to do.
For information on business loans go to http://www.creditworld.com.au/business-loan.html.

Summary

• Personal loans are often short-term, unsecured and for small amounts of money.
• Consider whether a personal loan is your best option, and what type of loan to apply for.
• Late payments can result in repossession or debt collection proceedings.
• When applying for a business loan you need to demonstrate that your business can generate substantial cash flow, and that you have some capital to start with.

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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