There are several features that make up a personal loan and it’s important that you take time to choose which options may best suit your home improvement needs and fit into your budget.
Personal loan rates come in both fixed and variable forms. Fixed rate personal loans will have one interest rate that keeps your monthly repayment amount steady over the loan term. This can be useful when it comes to budgeting for repayments throughout a renovation project.
However, loan features like making extra repayments are more commonly found with variable rate personal loans. Variable rate loans are subject to market fluctuation, so if rates rise, your personal loan rate may rise too, but if rates fall, your interest rate and loan repayments will decrease.
Choosing between a secured or unsecured personal loan can have a considerable impact on the total cost of the loan. A secured personal loan involves you offering up an asset as security that the lender will sell if you fail to make the payments on your loan. As there is an added layer of security for the bank, these loans may offer lower interest rates than unsecured personal loans.
An unsecured personal loan does not require you to offer up an asset as security, so there is no risk of losing said asset. However, this option may come with higher interest rates or fees due to the increased risk placed on the lender. If a low rate is important to you, then it may be worth considering a secured personal loan.
The actual length of the personal loan term you choose will also impact the overall cost of the loan. A short-term personal loan (1-3 years) will generally mean you’re paying a higher ongoing repayment (weekly, fortnightly, or monthly) but will be charged less interest over the life of the loan.
A longer-term personal loan (4-7 years) may offer lower ongoing repayments, but you could pay more interest as it is spread out over a greater period. The better option will depend on your budget and financial situation.
- Redraw facility & extra repayments
Some personal loan lenders offer helpful features that may help reduce costs and create more flexibility. Finding a loan that allows you to make extra repayments may give you more control and potentially reduce the interest you pay over the life of the loan. You will find that the faster you can pay down the loan, the more you will save over time.
And if you want to access these extra repayments for any reason, a redraw facility may let you do just that. Personal loan with redraw facilities allow borrowers to draw down additional repayments paid into a loan. Keep in mind that for both features, additional fees and interest may be charged.