Looking for best small loans?
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It goes without saying, when it comes to any purchase whether that be finance, insurance, a new tv or car, you want to have peace of mind that you select the right company. With so many options available in the market for loans it can be a daunting task to compare and select the right company and product regardless whether it is only a small $2,000 loan or a larger amount of $35,000. It’s important to understand fees, charges, terms, conditions and after-sales support.
What is a small loan?
A small loan is an unsecured personal loan for an amount under $5,000. They may also be referenced as a “cash loan or “short term instant loan”. A small loan is no different than an unsecured personal loan however due to the smaller amount, over the years the market has developed its own name for them. Sometimes is used instead of a credit card. There are several benefits in opting for a small loan rather than a credit card which include the following:
- Interest and repayments are fixed and known upfront
- Interest rates can be similar
- Its not a revolving credit line which at times can lead to ongoing unnecessary use of credit
- Significantly more flexible lending guidelines, unlike credit cards which are mainly issued by major banks, small loans come from non-banks. Non-banks are more open to diverse risks and so its a lot easier to get approved compared to a credit card from the bank.
What can a small loan be used for?
In Australia, a small personal loan can be used for a wide variety of reasons, any worthwhile purpose is accepted which can include:
- Engagement ring
- Emergency expenses
- Debt consolidation
- Cheap car
The list is endless, it is important to note that your loan could be used for multiple purposes also, let’s say you took out $5,000. You could use $1,500 to buy a new fridge and washer, $2,000 for a weekend away and the remaining $1,500 for car repairs. All lenders will send approved funds into your selected bank account, here you can use at your discretion.
How do I select the right lender?
In Australia, the cash loan industry is quite large, it is estimated that more than one million Australians took out small loans last year. Due to their being such a large demand for this service it has resulted in a large number of lenders in this space, so how do you select the right one?
Firstly regulators have placed strict consumer protections through Consumer Credit Legislation Amendment (Enhancements) Act 2012 for small loan lenders. The provision includes the following:
- Lenders are capped & only permitted to charge a fixed amount set by the regulator for a loan up to $2,000. This is a maximum establishment fee of 20% and a maximum monthly fee of 4% of the loan amount
- Loans up to $2,000 that previously were required to be paid within 15 days has been banned.
- If you default on a small loan, you cannot be charged more than the original loan amount on top.
- Responsible lending applies – meaning that the lender cannot place you into another loan if you are already severely in arrears on a current loan.
Considering all the above legislation one would say, with a tightly controlled and regulated pricing structure, it shouldn’t matter which company you use, right? they all offer the same! One could assume this but that wouldn’t be wise – the provided regulations provide a guideline for the maximum amount a lender can charge, this does not factor in lender to lender price and policy competition.
Every customer is different, and most lenders work on a ‘Rate for Risk’ basis, What this means is that if you are determined to be of less risk for a particular lender, they will reward you with a cheaper rate. If they deem you to be of higher risk due to a previous default or a recent slow account on another small loan, they may still be prepared to lend to you but they may charge you a higher rate.
Some small personal loan lenders have different tiers starting with a 10% establishment fee & only a 1% monthly fee going up to the maximum from there.
When you are looking at loans from $2,000 – $5,000, rates can start for low-risk customers at 12% excluding fee’s going up to the maximum 48%, excluding fees.
Some lenders specialise in bad credit and are only prepared to lend to a higher risk, those lenders will generally charge the maximum amount due to the high risk, but for that customer, fee’s and charges may not be important, getting the loan at a slightly higher rate is worth it, considering, what it may cost to not have access to those funds at all. These lenders focus more attention on your income/expenses rather than your credit score. Other customers who have strong credit scores should be reviewing fee’s, charges and terms to drive the cheapest price. A good credit score shows that its unlikely the lender will have issues with collections and should, therefore, be able to provide you with better pricing.
After sales support
Apart from fee’s and charges you want to select a company that is reputable, has time in the industry and build’s a relationship with its clients. Reviewing testimonials online through product review, google reviews or any other platform is advised, generally, if you type in the company name + reviews you will get a number of reviews from previous or existing customers. Reading these reviews will give you great insight as to what your experience will be like.
What kind of flexibility does your loan offer? Does it offer extra repayments without fees? Can you out your loan early without discharge costs? These are areas that need to be reviewed.
We are proud as Savvy to partner with many of Australia’s most reputable small loan lenders, we have a diverse panel that can help out all different types of customers and profiles, some that reward strong credit scores, and then others that are prepared to look outside the box to get the difficult application across the line. All of our lenders are reputable with many years of experience. They have high customer satisfaction ratings and definitely provide loan flexibility.