These personal loan rates will shock you
The personal loan market is being shaken up by new, cheaper marketplace lenders and by expensive small payday loan providers. The banks and credit unions are being squeezed and are responding with some great personal loan deals. But think very carefully about taking out a loan with these lenders:
Avoid these lenders:
Right now, after Christmas, the online payday lenders are advertising heavily with catchy jingles and names like “Debt Master” and “Loan King.” They make their loans sound easy with promisers like “Get the cash and move on!” These loans average about $500.
More than 650,000 Australians use a small loan provider or payday lender each year. This number has doubled in the last decade according to Digital Finance Analytics. And increasing numbers of people are taking more than one loan in a year and risking being trapped in a debt cycle. That’s when you are using a new loan to repay the last loan because they are so difficult to completely repay.
But the interest rates charged by payday lenders will shock you. Fairfax reports that small loan providers typically charge an annualised interest rate of 128 per cent for a three month loan. For a 12 month loan these lenders charge about 68 per cent because that is the limit set by government.
The penalty for default on a small “payday” loan is capped at twice the original loan amount.
Rent to buy deals are loans in disguise and can be just as expensive as a small payday loan. Often used to rent or purchase appliances, TVs and computers, these deals are structured as a lease and not covered by responsible lending rules. You could be charged as much as six times in rent what a product would cost you to buy, and you may not own it at the end of the contract. The effective interest rate can be as high as 884 per cent, reported Fairfax this week.
Cheap unsecured personal loans
When you need cash, you need an unsecured personal loan. For people with Pension Concession Cards and Health Care Cards, there are subsidised loan schemes run by charities like Good Shepherd Microfinance’sNo Interest Loan Scheme and Step Up Loans.
For people with a job, some of the cheapest personal loans now in the market are:
SocietyOne’s Low Rate Loan for Excellent Credit with a comparison rate starting at 9.90 per cent.
Direct Money’s Unsecured Personal Loan with a comparison rate of 9.58 per cent
CUA’s Unsecured Personal Loan has a comparison rate of 10.89 per cent.
Latitude’s Low Rate Personal Loan has a comparison rate of 11.22 per cent.
HSBC’s Personal Loans have a comparison rate of 12.54 per cent.
You can compare unsecured personal loans here.