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Australians owe over $100 billion in personal lending. There are approximately 55% that is owed in revolving credit, and 45% as fixed loans. Why do you need a personal loan? Essentially it is there for convenience when you need it. We will help you grasp the ABC’s of a personal loan, and you will see how it will make future purchases as easy as 1,2,3
A personal loan is a type of credit that can be used for specific purposes such as buying a car, renovating your home, consolidating debt or even covering your long-awaited wedding. Like any other credit you borrow an amount of money, which is set to a limit, and you make regular payments to your lender. Here are four important features you need to consider before getting a personal loan:
Low interest rates
Imagine a personal loan being a carbon copy of Oprah screaming “You get low interest rates! You get low interest rates…Everybody gets low interest rates!” The interest rate charged is usually lower than your typical credit card, and can be negotiated with your lender. You need to also be aware of what is known as the ‘honeymoon’ rates. This means that the low interest rate can only apply for 1 or 2 years. However, this all goes with the type of personal loan you go with. Canstar recently put the numbers together to find out what were the minimum and maximum interest rate you will have to pay back, and they are as follow:
- Secured personal loans have a minimum of 4.53% and a maximum of 19.49%
- Unsecure personal loans have a minimum of 6.28% and a maximum of 22.99%
If the shoe fits
It is always best to know what you are looking for in a loan. Furthermore, Know what you want to use it for. There are many types of personal loans to choose from, and sometimes being spoilt for choice is confusing. We have selected three types of personal loans in no particular order, or rank to give you a quick overview below. It is always best to carry out further research, or speak to one of our financial consultants to see what works best for you.
Secured
A secured personal loan is for people who are looking to purchase large assets such as a car, or will be in need to cover a similar asset. Once you make the purchase your asset will be used as security against the loan. This means that should you default on one of your payments the financial institution could reposes your asset, sell it, and use the money made to cover your debt. The benefits of a secured personal loan are that they have lower interest rates, because of it not being a risk for the lender.
Unsecured
An unsecured personal loan is for people who want to cover things such as a holiday, home renovations, or consolidating your debt. It is more flexible option for borrowers, and requires no security against the loan. The interest rate is slightly higher as this is a risky investment for the lender. Proof of you being able to pay back in the form of a guarantor could be asked to be submitted with your application.
Overdraft
An overdraft is the go to for those day to day emergencies that you will have to cover. It ensures that you have enough money in your account for those emergencies that pop up when you least expect it. The catch to this is that there is a maximum amount that you can apply for, and the interest rate is higher at 12.39% p.a. in this type of loan. However, you only pay interest on the money you use.
Scheduled payments
The flexibility that comes with a personal loan can also be in the form of scheduled payments that you can make with your selected lender. You can spread your payments over a period that will be reasonable for you to eventual cover your debt. Sometimes financial institutions can hit you with an early repayment fee which, depending on the type of arrangement you have made, can make you pay off your personal loan early. This could range from $0 to $800. The common reasonable cost is $150.
Fees and charges
Low interest rates do not necessarily mean the best option for you when you consider fees and charges. This could have significant difference to your loan. Again, always compare interest rate charged against other fees and charges to see if you are getting the best deal. According to Canstar the application for a personal loan can range from $0 to $378 for a secured personal loan. An unsecured personal loan fees ranged from $0 to $395.
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This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.
The content on our website is produced by experts in the field of finance and reviewed as part of our editorial guidelines. We endeavour to keep all information across our site updated with accurate information.
Approval for personal loans is always subject to our lender’s terms, conditions and qualification criteria. Lenders will undertake a credit check in line with responsible lending obligations to help determine whether you’re in a position to take on the loan you’re applying for.
The interest rate, comparison rate, fees and monthly repayments will depend on factors specific to your profile, such as your financial situation, as well as others, such as the loan’s size and your chosen repayment term. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, aren’t included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate.
