With a specific loan you borrow a particular amount and agree to repay it in specified instalments over a certain term.
There are two main types of specific loan.
Personal loans
You borrow money from a bank, building society, credit union or finance company. The lender will often agree to lend to you without security, but you'll probably pay a higher interest rate. Some lenders may require an asset, such as your car, as security. But if you don't make repayments, the lender can repossess and sell that asset.
Institutions usually lend from as little as $1000 up to $30,000. An increasingly popular type of personal loan is a car loan, normally secured against the car.
Interest rates - 11 to 18 percent per annum for secured lending; up to 21 percent for unsecured. Car loans range from 11.5 to 18 percent per annum.
Fees - Anywhere from $10 to $250 in application fees depending on the size of your personal loan.
Advantages - Often cheaper than hire purchase or credit cards. Car loans command a lower rate than an unsecured personal loan because they're secured against the vehicle.
Drawbacks - If you want more credit, you'll have to re-apply - that's likely to cost you more in fees. If the loan is secured, you may be up for valuation and legal fees.
Worth considering - If you're buying an expensive household item, car or consolidating more expensive loans.
Term sales (Hire purchase)
You borrow to buy a product, such as a washing machine, which is then used as the security for the loan. You pay a deposit and repay the loan in regular instalments. Look out for special deals which offer zero percent interest and/or no deposit.
Note: this type of loan used to be called hire purchase.
Interest rates - If it's not interest-free, expect to pay 16 to 27 percent per annum.
Fees - Generally a booking or establishment fee applies and costs between $20 and $50. Add another $20 to $40 if you require delivery.
Ask any potential lender for information about what the loan will cost you. If they won't or can't give it to you, make doubly sure you're aware of all the fees.
Advantages - Available pretty much everywhere and you don't need security to get it. Special interest-free promotions are worth hunting out.
Drawbacks - Can be outrageously expensive. You can easily end up paying more in interest and fees than the original cost of the item. Watch for the length of the interest-free period.
Worth considering - If you're buying household items.