Personal loans becoming a popular choice

• Before whacking the cost onto an already-overburdened credit card, it's worth investigating a lower-cost alternative.
• Personal loans have shed their daggy image and are emerging as a smarter debt option, with interest rates and a convenience factor positioned somewhere between home loans and credit cards.
• The research firm Cannex recently released its first personal loan star ratings report, which compared the cost and features of more than 390 car and personal loans from more than 90 banks, building societies and credit unions.
• Andrew Willink, the managing director of Cannex, says the report was prompted by a combination of "increasing levels of personal debt" and the increasing complexity of products on the market, which made borrowing decisions more difficult.
• In addition to funding fresh spending, personal loans are also popular for the purposes of "debt consolidation" where borrowers swap an expensive form of lending - perhaps several maxed-out pieces of plastic - for a single (and single-digit interest rate) alternative.
• You might be able to consolidate debts on to a home loan, but you'll actually fork out less if you make a personal loan the centrepiece of this strategy, Willink says.
• "Personal loans are generally more expensive than a home loan because the lender has bricks and mortar as security, [but] personal loans can be cheaper [in the end] because borrowers take out a loan for a shorter period and pay off the loan at a quicker rate than a home loan.
• Laura Menschik, the managing director of WLM Financial Services, says they typically allow for bigger loans than do credit card facilities.
• However, unlike cards, which allow people to maintain revolving (and often ballooning) lines of credit, personal loans require regular, fixed repayments, which requires the borrower to exercise a greater degree of discipline.