Type Of Loans Available - FastLoans.com.au

Type Of Loans Available

When you're shopping for your first fast loans, the choices can be daunting. How do you know whether to choose secured or unsecured, fixed or variable? If you're not sure what type of loan to choose, here's a quick guide to the most common options.

Secured vs unsecured

• Secured: A secured loan requires you to put up one of your assets as collateral or security for the loan. If you default on the loan or fail to pay back on time, your lender can claim the collateral as your payment. This makes it less risky for your lender but more risky for you. In exchange, you get lower interest rates and usually more favorable loan terms.
• Unsecured: Unsecured loans, on the other hand, are free of any collateral. This is often the choice for people with no assets to put at stake. The risk works the other way around: less risk for you and more for your lender. To compensate, lenders often charge much higher interest rates for this type of loan. The terms may also be less flexible, and the penalties often harsher for late, missed or even early repayments.

Fixed vs variable

• Fixed: A fixed rate fast loans has a single interest rate applied throughout the loan period, so your fees remain the same regardless of the market figures. The interest is often higher in this structure, since your lender risks losing money if the market interest rises. Nonetheless, more people choose fixed rate loans because they offer more stability than variable rates.
• Variable: Variable rate loans base their interest on the current market rates. This means that you can pay less or more from month to month, depending on the prevailing rates. For long-term loans, this can be a risky choice since you don't know how the economy will do during the life of your loan. In exchange for the added risk, lenders offer a lower base interest and more flexible terms for variable rate loans.

Another type of loan, the split or combination, allows you to switch between fixed and variable rates. Usually, you start off with a low fixed rate for the first few months (known as the ‘honeymoon period') and revert to the standard variable rate afterwards. It is also possible to start with an adjustable rate and move to a fixed rate, or make the switch more than once. Note that your lender may charge a switching fee every time you change your loan structure.