Personal loans are popular for buying a car or a holiday but make sure you have a solid way to repay

PERSONAL loans are usually taken out to fund a new car, holiday, renovation or to pay the school fees. These are the key things to consider beforehand.

PERSONAL loans are usually taken to fund a new car, holiday, renovation or to pay the school fees.

And their popularity shows no signs of easing with personal loan lending up 2.1 per cent to a whopping $7.3 billion in December, according to Australian Bureau of Statistics data.

These products are different to credit cards that don’t have to be paid off within a specific time frame instead personal loans must be repaid within a certain period and often payments are directly debited monthly from your bank account.

But new research found almost one in two borrowers feel anxious, stressed or trapped by their towering debt, financial comparison website finder.com.au found.

The site’s spokeswoman Bessie Hassan says think carefully before you sign up to this type of credit.

“Before turning to a personal loan be sure to budget and design a repayment plan,’’ she says.

“If you’re unable to meet repayments and your debt grows you’re effectively prolonging a debt-free future.”

The research, taken from 1000 personal loan customers, also found they have on average about 31 months left to repay their personal loan and an average balance of about $12,600.

New car purchases are the most popular use for personal loans.

Marketplace lender Society One co-founder Greg Symons warns borrowers not to make numerous personal loan applications because it can damage your credit score.

“It’s not advisable to apply to multiple lenders at a time because the more inquiries (there are) on your credit report, it will diminish your credit score considerably,’’ he says.

He also says borrowers should understand the break fees associated with this type of loan as they can be steep.

Directmoney.com.au offers consumers unsecured personal loans of up to $35,000 and their chief executive officer Peter Beaumont says there’s a few key things consumers need to do to be on top of a personal loan.

“They should look at the interest rate they are paying and not just focus on the payment size,’’ he said

“For example a very long personal loan of seven to ten years might have a small payment relative to a three-year loan but the interest rate will be far higher.”

He also encourages customers to look at the size of fees associated with this type of lending as they can vary greatly.

Originally published as Personal loans are popular for buying a car or a holiday but make sure you have a solid way to repay