A personal loan is a simple well understood product that is basically the same, no matter which lender you go to, right? Well no that’s not right. The interest rate you pay is just one way personal loans differ from each other. Some loans allow early repayment, some loans are fixed rate, while other loans have interest rates that can move up or down while you are still repaying them! And these days there are personal loans in the market that charge high fees, very high interest rates and could possibly get you into a lot of trouble. When you are looking for a personal loan, take these things into account:
1) Interest rate
This is the rate you will be charged for the use of the lenders money. But don’t just look at the headline advertised rate, look for the comparison rate which takes into account the fees and other charges as well.
For example, one of the lowest personal loan rates in the Australian personal loan market right now is Society One’s Low Rate Loan for Excellent Credit which charges just 7.88 per cent per year. The comparison rate, taking into account the fees and charges, is 2.02 per cent higher at 9.90 per cent.
2) Total cost of the loan
InfoChoice helps you choose a good loan by providing you with an estimate of the total cost of each loan, which includes the interest rate and the fees. So you don’t have to try and work through the maze of fees and rates to compare each loan. For example, one very competitive loan, CUA’s Unsecured Variable Personal Loan charges a headline (and comparison rate) of 11.89 per cent. On a loan amount of $20,000 and a term of two years, InfoChoice’s personal loan comparison table will tell you that this loan will cost you $22,570 in total.
Some loans come with features you might not expect. For example the Citi Ready Credit Flexible Line of Credit is a personal loan that works like a credit card. As you repay the loan, you free up credit that can be used for new spending.
Other loans have a redraw facility that allows you to draw down the amounts you repay ahead of schedule. For example BCU’s Personal Loan has a competitive comparison rate of 9.85 per cent, the flexibility to make additional repayments, pay out the loan early with no additional fees or redraw down on the extra repayments you have made.
4) Smaller banks have better rates
If you have a bank account with a big four bank, that doesn’t mean you should stick with that institution for a personal loan. The big banks do not offer the best rates or the cheapest loans in the market. Other lenders are cheaper, so look around. For example, NRMA’s Secured Car Loan offers a comparison rate of 6.73 per cent and flexible repayment options. ME’s Personal Loan has a comparison rate of 14.27 per cent. These are well below the lowest rate on offer from any of the big banks.
5) Steer clear of payday loans
The Australian Securities and investment Commission, financial counselors and consumer lobby groups have all warned borrowers about high cost, small personal loans from ‘payday’ lenders and pawn brokers. Many of these loans are advertised online with catchy jingles and funny videos. These loans can feature interest rates as high as 48 per cent per year.
You can compare all the personal loans from all of Australia’s responsible lenders here.