Why you might consider taking out a personal loan
Whether you’re planning your dream wedding, hoping for a holiday or buying a car, there are plenty of life situations where you may need access to some extra funds.
While credit cards are great for managing your day-to-day finances, a personal loan may be a better option for larger purchases because their interest rates are, on average, several percentage points lower than those of credit cards. Also, unlike other types of financing, personal loans can be used for just about anything.
This guide explains how different personal loans could help you achieve your goals.
For personal financing needs
There are two main types of personal loans: secured and unsecured. The one you choose will depend on how you intend to use the funds.
A secured personal loan may be a better option if you need to borrow a significant amount of money, as they tend to have lower interest rates. Also, putting up an asset – such as your car or home – as security may increase your borrowing power.
Unsecured personal loans can be used for a wide range of personal financing needs, and don’t require you to put up an asset as security. Although convenient, bear in mind that unsecured personal loans tend to have higher interest rates than secured personal loans, as they carry more risk for the lender.
Personal loans can be used for:
· Weddings. With the average wedding in Australia costing over $36,000, a personal loan could help make your special day a reality.
· Education. If you're a full-time student juggling multiple responsibilities, a personal loan may help lighten the financial load of tuition fees and living expenses.
· Renovations. Don't have equity built up or don't want to use it? Consider financing home improvements with a personal loan instead.
· Medical expenses. Cosmetic surgery, fertility treatments, orthodontics and major dental work may not be covered by your regular insurance. A personal loan can help bridge the gap.
· Holidays and trips. Whether it's your honeymoon or a holiday, a personal loan could help you cover the cost of flights or accommodation, or provide you with a little extra spending money.
Still not sure? Here are five things to consider when comparing personal loans.
To consolidate debt
If you’re carrying a credit card balance, an unsecured personal loan could potentially help you reduce debt, simplify your finances and get back on the road to financial freedom.
For example, Mike is carrying balances on two credit cards:
|Credit card||Amount owing||Interest rate|
|Card #1||$7,500||19% p.a.|
|Card #2||$10,000||15% p.a.|
If he were to pay the minimum 3% towards the balance of each card every month, it would take him more than 22 years to pay off his debt and cost him a staggering $15,159 in interest.
Instead, Mike decides to take out a five-year, 5% fixed interest debt consolidation loan. Now he only has to make one monthly payment of $330.25, and will save $12,844 in interest over the long term.
Use our Personal Loan Repayment Calculator to work out your repayment schedule.
To buy a new or used vehicle
Whether you need a new car for work or to cater for your growing family, a car loan can help get you on the road in no time.
Car loans may either be secured or unsecured, depending on the age of the vehicle, and can also be used to finance different types of vehicles, including boats or motorbikes.
If you’re planning to purchase a second-hand vehicle, bear in mind that not all car loans are available for used cars.
For personal overdraft protection
Personal overdrafts are a type of personal loan that are linked to your transaction or savings account. If you happen to exceed the balance in your account, you can draw on extra funds from your overdraft account – up to a pre-approved limit – to cover the difference.
A personal overdraft can be a convenient security net to help cover short-term needs.
Benefits of personal loans
Depending on your goals and objectives, a personal loan can be a smart way to manage your finances.
Potential benefits include:
· Flexibility and choice. Choose from either a fixed interest rate loan for predictable monthly payments, or a variable rate loan which may allow greater flexibility.
· Individualised payments. With term lengths ranging from one to seven years, personal loan payments can be customised to your individual needs and budget.
· Predictability. With a personal loan, you know exactly how much you're paying back every month, as well as the date when your loan will be paid off in full.
When used responsibly, a personal loan can help you make the most of your financial choices. When comparing offers, remember to always check the comparison rate, which includes the cost of fees and charges to reveal the true cost of the loan.
Find the right personal loan for your needs. Search and compare personal loans now.