Should you use a personal loan?

Should you use a personal loan?


A personal loan can come in handy if you need some extra cash to fund a purchase, but it may not always be your best option.

Before you sign away, you will need to understand how personal loans work and if they are appropriate for your circumstances.

A personal loan is when a person borrows a set amount of money over a time period, along with interest, fees and charges from a credit provider.

There are generally two types of loans: secured and unsecured. Secured loans are secured by an asset, i.e., a car or home, in the case you would default on the loan. These loans have lower interest rates as the asset could be sold if you cannot repay the loan.

Unsecured loans, on the other hand, are not secured by an asset and therefore generate higher interest rates. A credit provider has the ability to take you to court if you cannot repay the loan.

One of the first things you should check when deciding on a loan is the interest rate. You can calculate how much interest you will pay over the lifetime of the loan by multiplying the annual interest rate by the term of the loan. For example, if you are borrowing $5,000 with an annual interest of 3 per cent over 2 years, you would pay $300 in interest in total.

Another important consideration is fees and charges as these can vary substantially between credit providers. The fees and charges will depend on the amount of money borrowed.
If you plan on making additional payments, you should also check to see if there are any extra fees for doing so.

Before you commit to a loan, shop around for the best deal, ensure that you have read and understood the terms and conditions, and are confident you can make the repayments.

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If you believe the matters discussed above are relevant to your business, please contact Darren Smith of our office to discuss further.


Darren is a Chartered Accountant with extensive experience, including working in the big 4 and medium sized firms before becoming a partner of a city based firm in 2000.

He has gained much experience and has extensive knowledge in providing business and taxation advice, superannuation planning, negotiation of sales and acquisitions of businesses and property development. His client base covers a wide range of industry groups.

Darren works with business owners to grow their businesses and create personal wealth within and outside of their business.


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