Loan comparison

There are several different types of loans and finance available. We've taken a look at the different loans and finance side by side.

Type Advantages Disadvantages
Secured loan
A personal loan where something valuable such as your house or car is used as security. If you don't make repayments, the lender can sell the house or car to get their money back.
The risk for the lender is lower - they can get their money back by selling the security. This means you can usually borrow more and pay less interest than an unsecured loan. There is usually a lot of paperwork to fill in.
Unsecured loan
A loan that doesn't have something of value, such as your house or car, used as security.
There can sometimes be less paperwork to fill in than for a secured loan.

The risk for the lender is higher - they have nothing to sell if you can't make repayments. This means interest rates are higher than for a secured loan.
Personal or car loan
Money borrowed from a bank, building society, credit union or finance company. Interest is charged and you usually pay a set-up, or establishment fee. Repayments are a set amount and subject to a regular payment schedule. These loans can be either secured or unsecured.
They are usually cheaper than hire purchase or credit card loans. They are useful when buying an expensive household item, car or consolidating other loans. Since car loans are secured against the vehicle they usually have a lower interest rate than an unsecured personal loan. You need to re-apply if you want to borrow more later on, which means you may end up paying extra fees.
Hire purchase
A loan allowing you to buy goods, such as appliances, on credit. You use the goods while you are paying for them and they belong to you once the final payment is made. Interest is usually charged and you usually pay a deposit and booking fee. The loan is repaid in regular instalments, often monthly. Sometimes special hire purchase deals offer an interest free period and/or no deposit.
You can buy expensive items that you can't pay for straight away and spread the cost over time. They're easy to get, offer great finance deals (such as interest free periods and no deposit) and you don't need security. Interest and fees add to the original cost of the item. With interest-free deals you can end up paying more interest when the interest-free period ends and there is still a balance owing.
Overdraft loan
Money borrowed from your bank that's drawn on when you have no money left in your account. Overdrafts are usually fixed amounts of either hundreds or thousands of dollars. Most charge interest and a monthly fee. Overdrafts are either arranged or unarranged.
Overdrafts are useful when you don't know how much you want to borrow or how long you'll need it for. You use the money when you need it, repay when you want and borrow again without having to re-apply. Overdrafts can be an expensive way to borrow money, and if you go over your arranged limit, interest rates will be even higher. Be careful of overdrawing your account if you don't have an arranged overdraft, as the fees can be expensive.

 

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