Simplifying Personal Loans: A Comprehensive Guide

If you’re looking at getting your first loan, you may have seen lots of different financial terms that may be new to you, and you may not yet understand. Not to worry, in this guide we will simplify personal loans by breaking down what they are, how they work, and how to make the right decision to suit your needs.

What is a personal loan?

A personal loan is usually a type of unsecured loan, meaning you don’t need to provide collateral like a home or car. These loans can be quite versatile, allowing you to borrow money for a range of purposes, such as consolidating debt, financing home improvements, covering medical expenses, or funding a major purchase like a car. The loan is repaid in regular monthly instalments over a set period, typically ranging from one to ten years, depending on the loan type, the term you choose, your repayment capacity, and the lender’s terms and conditions.

Fixed rate loans vs. Variable rate loans

If you’re looking to get a personal loan, then there are two main types of loan available to you. It’s important to know the difference between each.

1. Fixed rate loans: With a fixed rate, your interest rate remains unchanged for the entire loan term. This provides stability to the borrower meaning your monthly repayments are predictable, making it easier to budget and manage your finances. Fixed rate loans are particularly beneficial in times of economic uncertainty when interest rates might rise unexpectedly. Avant Money offers Ireland’s best fixed rate on personal loans over €20,000* at an APR of 6.8%. So, you have the peace of mind of knowing your loan repayments will be the same fixed cost each month.
2. Variable Rate Loans: Variable rate loans have interest rates that can fluctuate based on market conditions. With variable loans, no matter the interest rate, there is always a risk that the rate could rise and with it your monthly repayments. This can make your future financial obligations harder to predict.

Frequently asked questions

There are a number of common questions people ask when looking to get a personal loan. These include:

How much can you borrow for a personal loan?

Different lenders will have different lending policies which may also be influenced by the loan purpose. Avant Money for example, offer personal loans from €5k to €75k at a fixed interest rate for the duration of the loan. The amount you can borrow will be based on a number of different factors including your income and repayment capacity. It is important that for the loan amount and term requested, that you can clearly demonstrate capacity to meet the regular repayments and that your bank statements evidence this e.g a savings history. The lender will consider the interest rate, overall terms, and your future capacity to repay or any likely change in circumstance when considering your loan application.

How do Personal Loans Work?

Understanding how personal loans work is crucial to simplifying your borrowing experience. Here’s a step-by-step breakdown:

1. Loan Application: You begin by applying through a bank or financial institution. The lender will assess your credit history, income, and other financial factors to determine your eligibility. Fortunately, most loan applications can be done online saving you time. E.g Avant Money have a fully online loan application process easing convenience for applicants.
2. Loan Offer: If approved, the lender will offer you a loan amount with specific terms. This will include the interest rate, loan term, and monthly repayment amount.
3. Repayment: Once you accept the loan offer, the funds are usually transferred directly to your nominated bank account. You’ll then make monthly repayments according to the agreed schedule until the loan is fully repaid. If you do not meet the repayments on your loan, your account will go into arrears. This may affect your credit history, which may limit your ability to access credit, a hire-purchase agreement, a consumer-hire agreement or a BNPL agreement in the future.
4. Completion: After all the required repayments are made, the loan is paid off.

What do you need for a personal loan?

In order to apply for a loan you must be over 18 and a resident of the Republic of Ireland. You will also need to provide proof of income including bank statements and payslips, proof of address, proof of identification, and proof of PPSN. The exact documents required will vary by lender.

How to qualify for a personal loan?

When assessing a loan application, the lender reviews your income and repayment capacity to ensure you can comfortably cover the loan repayments. In order to qualify for a loan, having demonstrable ability to repay the loan amount is important.

Can you pay back a personal loan early?

Different lenders will have different policies when it comes to paying back a loan early which is prior to the end of the loan term. Some lenders may charge a fee or interest while others do not. Avant Money for example offer the ability to repay your loan early without incurring any additional fees or penalties.

Advantages of personal loans

Personal loans offer advantages that make them an appealing option for many borrowers compared to alternative finance options:

• Flexibility: Personal loans can be used for almost any purpose, from home renovations to unexpected medical bills, giving you the financial flexibility you need.
• No Collateral Required: As most personal loans are unsecured, you don’t risk losing any assets, like your home or car, if you’re unable to repay the loan.
• Predictability: If you choose a fixed rate personal loan, then your monthly repayments are fixed making it easier to manage your finances.
• Debt Consolidation: If you have multiple high-interest debts, such as credit card balances, you can consolidate them into a single personal loan with a lower interest rate. This not only simplifies your payments but can also save you money on interest over time.

Key Considerations When Choosing a Personal Loan

Before taking out a personal loan, it’s important to consider the following factors:

• Interest Rates: The interest rate is one of the most critical aspects of any loan. A lower rate means lower monthly repayments and less paid in interest over the life of the loan. It’s essential to shop around and compare rates from different lenders.
• Loan Term: The loan term, or the length of time you have to repay the loan, can significantly impact your monthly repayments and total cost of interest. While a longer term may result in lower monthly repayments, it often leads to higher overall interest costs. Conversely, a shorter term may increase your monthly repayments but reduce the total interest paid.
• Fees: Be aware of any additional fees which different lenders may apply associated with the loan, such as origination fees, late payment fees, or prepayment penalties. These can add to the overall cost of the loan.
• Credit Report: Your credit report plays a significant role in determining the interest rate and terms of your loan. Borrowers with higher credit scores typically qualify for lower interest rates, making the loan more affordable.

Tips for Simplifying the Loan Process

To make obtaining a personal loan as straightforward as possible, follow these tips:

• Use Online Loan Calculators: Many lenders offer online tools that allow you to estimate your monthly repayments and total loan costs based on different loan amounts, terms, and interest rates. These calculators can help you determine what you can afford before you apply. Why not try Avant Money’s personal loan calculator to see how much you can borrow.
• Check Your Credit Report: Before applying, review your credit report to ensure there are no errors that could negatively impact your loan application. Correcting any mistakes in advance can improve your chances of securing a favourable loan. You can apply for a credit report for free (subject for fair usage) directly with the Central Credit Register.
• Ask Questions: Don’t hesitate to contact lenders with any questions about the loan terms, fees, or application process. A reputable lender will be transparent and happy to help you understand all aspects of the loan.

Final Thoughts

Personal loans can be a valuable financial tool when used wisely. By understanding the basics of how they work, comparing your options, and carefully considering your needs, you can simplify the process and find a loan that fits your financial situation. Whether you’re consolidating debt, covering unexpected expenses, or making a major purchase, a well-chosen personal loan can provide the finance you need while keeping your budget on track.

If you’re interested in a loan, Avant Money offers Ireland’s best fixed rate on personal loans over €20,000* at an APR of 6.8%. So not only do you have the peace of mind of knowing your loan repayments will be the same fixed cost each month, but you also know that it’s at the best fixed rate in the country*.

Remember, the key to a successful borrowing experience is careful planning and informed decision-making. With the right approach, a personal loan can help you achieve your financial goals without unnecessary stress or complications.

*Rates and loan terms are correct as of 25th September 2024 and are subject to change (Source: CCPC.ie). Maximum APR (Annual Percentage Rate) is 19.9%. Minimum loan term is 12 months and maximum term is 120 months. Loan terms vary depending on the purpose of the loan; 120 month terms are only available for Home Improvement and Refinance loans of €20,000 to €75,000.

Representative example:
On a €20,000 loan over 5 years, at a fixed rate of 6.6% (6.8% APR) you will pay €392.26 a month. The total cost of credit would be €3,535.63 and the total amount repayable would be €23,535.63.

Rate offered takes into account financial profile and credit history.

Our interest rates vary depending on the value of your loan and credit profile. We will assign you the appropriate interest rate once your application has been reviewed. To find out more about the loan values and applicable interest rates, check out our rate table.

The above content of this blog does not constitute financial or professional advice from Avant Money. Readers should always seek independent professional advice and not solely rely on the information within the contents of this blog.

For more information on Avant Money personal loans, please visit https://www.avantmoney.ie/personal-loans

Avantcard DAC trading as Avant Money is regulated by the Central Bank of Ireland.