What is a personal loan?

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Can you use some extra money? For example, because you would like to buy a new car, or because you would love to pop the kitchen? Then a personal loan can be a solution. But what is a personal loan? How does it work? And what are the advantages and disadvantages of such a loan? In this article we tell you everything you need to know about a personal loan.

A personal loan, what exactly is that?

A personal loan is a way to borrow a certain amount at once. With this amount you can finance the goal that you have in mind, for example a new interior for your home, or that caravan you have been dreaming about for so long. With a personal loan you can borrow an amount that (when you meet requirements) is deposited directly into your account.

A personal loan is the most standard form of borrowing, unlike other variants such as a short-term loan , a private loan , a mortgage or a mini loan .

How does that work?

You determine in advance how much money you are going to borrow and how long the term of the loan is. The term determines how long the loan runs, and therefore how much time you have exactly to repay the entire amount. The redemption is done by repaying a monthly amount. Because the interest on a personal loan is already fixed in advance, you know exactly what the final amount is that you have to pay back, and how that amount will look monthly. That certainty is nice, because you know exactly where you stand and can not come up with surprises afterwards.

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When do you opt for a personal loan?

Taking out a personal loan is useful if you know in advance how much money you need because you borrow this amount at once. So if you need a new car for example, or have to finance a project, and know in advance what the costs will be, you can take out a personal loan for it. If you do not know exactly how much money you need, or if that amount might still run out, then it would be wiser to opt for a revolving credit.

For which situations?

You can take out a personal loan for which you want. Often such a loan is taken out to finance something that currently has no money for. By taking out a personal loan you can now buy or finance something, and then repay it in installments. For example, a personal loan is taken out for:

  • Buying a new car
  • Placing a new kitchen
  • The realization of a dormer

If you use the money from the personal loan to improve your owner-occupied home, for example for a renovation, this interest is deductible for the income tax. With an ongoing loan, you do not have this benefit, which is the reason for many people to choose a personal loan when they intend to grow.

Image result for personal loanWhat are the benefits of a personal loan?

When you think about taking out a personal loan, or are comparing different types of loans, it is important that you know the advantages and disadvantages of a particular loan. That is why we have listed below the advantages of a personal loan for you:

  • Fixed amount per month. With a personal loan you borrow a one-time amount. You then deduct this amount in fixed installments. The amount that you lose monthly (part repayment + part interest) is fixed in advance, so you know exactly where you stand.
  • Fixed term. Just as you know what amount you will have to pay monthly, you also know in advance how long you will have to do that. This ensures that you already know in advance when you will be ready to pay off, which prevents you from being confronted with surprises.
  • Deductible interest. Do you use the personal loan for improvement or renovation of your owner-occupied home? Then the interest is deductible for the tax.
  • Direct money. With a personal loan you have direct access to the borrowed amount. This money is transferred to your account at once, so you can immediately make the purchase you want, or finance the project for which you borrowed the amount.

Disadvantages of a personal loan

Although a personal loan mainly has advantages, there are of course also disadvantages. Below we have listed a number for you:

  • No possibility of re-recording. You can not re-enter the amounts you have repaid. This ensures that a personal loan is less flexible than, for example, a revolving credit.
  • Do not repay in the interim. There are exceptions, but usually it is not possible to pay off a personal loan during the penalty period. This has everything to do with the interest that the lenders miss when you pay the amount more quickly than agreed. Because they miss out on that money, you pay a fine. However, there are also lenders who pay off early and are free of penalty. On many comparison sites you can simply indicate this preference in the form of a filter.
  • Extra borrowing is not possible. With a personal loan, the amount you want to borrow is fixed in advance. Should it be that you find out during a renovation that you actually need more money, then it is not possible to just borrow some extra money.

Image result for personal loanMaturity personal loan

When you take out a personal loan you agree in advance how long the term will be. Often you can opt for a period of about 2 to 10 years. Some lenders even offer you the opportunity to make 15 repayments. Now it may seem interesting to choose for as long a term as possible, because the amount that you then have to pay off monthly is lower. However, this is certainly not always wise. View well what you need the amount for and how long that product lasts. Are you going to use the money from the loan, for example, to purchase a second-hand car? Take a good look at how long you can still make use of that car. It would be a shame if your loan has a term of 10 years, while the car will no longer be able to drive for more than five years. In other words: always adjust the term of your loan to the lifetime of that which you want to finance with it.

Compare personal loans

If you would like to take out a personal loan, it is wise to compare the providers (lenders) and their conditions with each other. Look not only at the amounts to be borrowed, the interest and the term of a personal loan, but also at the conditions. Is it possible, for example, to pay off a loan in the interim? And if so, do you have to pay a fine or not? And what about when you miss a payment term? What are the consequences? Read it carefully so that you know exactly what is expected of you when you take out a personal loan from a particular lender and what you can expect back from it.

Image result for personal loanRequest a personal loan or not?

Before you apply for a personal loan, it is important that you first carefully compare all the advantages and disadvantages. Is it, for example, that you yourself have savings? Then it is wiser to use this money to finance your purchase or project than to take out a personal loan. You pay interest on a personal loan, so you always pay more than you actually received. And that’s a shame. So if you are able to finance a purchase or project yourself (partially), then you are well advised to do so. Even if the purchase actually still can wait, and when you are able to save the amount yourself within a certain time, that is more sensible than taking out a loan to buy it now.

A personal loan

A personal loan can be the solution when you have to finance (or want to) finance a purchase or project that you currently do not have the money for. By depositing the loan amount into your account at once, you can immediately make the purchase from which you have borrowed the amount, and then pay it back in fixed installments. The term and the monthly repayment amount are already fixed in advance, which makes it clear and prevents surprises. Do you doubt what the best choice in terms of loan is for you? Be advised especially by a good lender. They will always provide you with a transparent advice, so that you can make the best choice for your situation.


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