There are many different features to consider when choosing a personal loan, and what might be suitable for one borrower may not be suitable for the next. So, it pays to do your research.
If you’re shopping around for a personal loan to cover your medical costs, consider the following features before you make a decision:
Secured vs unsecured
A secured personal loan is a loan that’s secured by an asset, such a car, which is used as collateral for the money borrowed. Car loans are the most common type of secured loans as the car itself can be used as security on the loan. Medical loans, however, are more likely to be unsecured. Although, it is still possible to get a secured medical loan if you have an asset to put up as collateral, such as your house.
Unsecured personal loans tend to have higher interest rates than secured personal loans, as they pose a higher risk to the lender. But while secured loans might offer you a lower interest rate, you are at risk of losing your asset if you fail to repay the loan.
The lender may offer you a higher or lower interest rate depending on how much you want to borrow and the strength of your credit history. For example, borrowers with good credit ratings will generally be offered more competitive interest rates than borrowers with bad credit scores. You may also want to compare whether a fixed or variable interest rate would better suit your needs.
Comparing personal loan rates is an important part of the comparison process, but remember that the lowest interest rate doesn’t always amount to the cheapest product. That’s because interest rates don’t factor in fees, which can really add to the total cost of the loan. This is where the comparison rate may come in handy, as it includes both the interest rate and the main fees payable, which can give you a better idea of the loan’s total cost. If two personal loan options have the same interest rate, but different comparison rates, it may mean that the loan with the higher comparison rate charges higher fees.
Some personal loans may offer extra features that could be important to you and how you pay off your loan. Some of these include:
- Extra repayments: Making additional repayments on top of your regular repayments is one way to pay off your personal loan sooner. However, not all lenders will allow you to do so, some may charge a fee, and others may have a limit.
- A redraw facility: A personal loan with a redraw facility allows you to withdraw any extra repayments you’ve made and return them to your bank account. This may be helpful if you want to pay less interest on your personal loan, but still want access to your money. Keep in mind that you may be charged a fee for using this feature.
It's important to remember that the cost of the loan is not limited to the amount of interest charged. Interest may be a lender’s main form of revenue, but the fees they charge could also be hefty. Look out for upfront fees, ongoing fees, and other non-standard fees. Some of the fees you may be charged include:
- Application fees
- Establishment fees
- Monthly fees
- Extra repayment fees
- Early repayment fees
- Redraw fees
- Exit fees