Best Personal Loans
Picking the best personal loan can be tough. Find out what you should look out for and how to compare the different types.
What are the different personal loan types?
There are two main ways personal loans differ – by the type of interest rate (Fixed or Variable) and if security is required.
Fixed loans have the same interest rate and repayment amounts for the life of the loan. A variable rate personal loan has an interest rate that could change (increase or decrease) at any time. The right rate type will depend on recent interest rate trends and the term of your loan.
A secured loan uses an asset (e.g. a car) as a type of insurance. If you fail to make your payments, the lender can sell the asset to cover their costs. An unsecured personal loan does not have this security, so is riskier for the lender and can be harder to get. The right loan type will depend on your credit history and what you will use the loan for.
Beyond this, every lender has their own interest rates, fees, and eligibility requirements. As a result, every loan varies slightly, so you should always read the terms and conditions carefully.
Isn’t the best personal loan just the one with the lowest interest rate?
Not necessarily. While the interest rate is important, and lower is usually better, there are other factors you need to consider.
Sometimes, low interest rates will be used to hide higher fees. As such, it’s important to look at the total cost of the loan, rather than just the interest rate.
Similarly, some lenders will offer a lower interest rate for a longer term. While your repayments will be lower, you could end up paying more in interest over the life of the loan. Again, looking at the total cost of the loan will help you avoid this issue.
We recommend looking at the loan’s comparison rate, instead of its interest rate. The comparison rate represents the true cost of the loan. It takes into account several factors, including the interest rate, all the fees, and the loan term.
The best personal loan type for your situation
While each personal loan will be different, some loan types are better suited to certain situations.
- If you’re buying a car, a secured loan is probably best. This will be easier to get and should have a lower interest rate.
- If you’re renovating your home, you may want to consider a line of credit. This will provide you with more flexibility and allow you to access funds as required.
- If you’re buying furniture or planning a holiday, an unsecured loan is probably the best. Alternatively, you may be able to use another asset, like your car, as security.
- If you’re investing, an unsecured loan is probably the best. However, you will need a good credit rating to secure such a loan.
- If you’re consolidating your debt, an unsecured loan is probably the best. However, you should consider all of your options if you are struggling with your debt, like entering a debt agreement.
- If you have a poor credit history or an unstable income, you may need a non-standard lender. But, keep in mind, these lenders will usually charge higher interest rates and fees.