The best personal loan rates for October 2020

Your best personal loan will be different from someone else’s because your needs and circumstances are different. It’s a case of finding the best product for you out of the best loans on offer.

When you’re looking for the best personal loans, you need to think about what’s best for you and your needs, not just the lowest interest rates. Although there are some very low rate personal loans available at the moment, you need to do a bit of thinking and comparing before settling on one particular product.

Ask why you’re looking for a personal loan

Are you looking for a loan because you have one big purchase in mind? Alternatively, do you need to make a series of purchases, or do you need to consolidate two or more other debts?

The reasons for your loan will help you to decide which kind of product to look at.

For example, if you’re looking to buy a car, a secured loan is best because it uses the car itself as security against the balance. If you’re planning to renovate your bathroom over a few months, then a line of credit or an unsecured loan might be better. You can pay off some of the loan or credit in between purchases.

The different types of personal loan

In the main, you have fixed or variable rate loans, as well as secured and unsecured.

Fixed rate and variable rate loans

With a fixed rate personal loan, you’ll keep the same interest rate throughout the repayment term, which makes budgeting easier. This means that if the lender puts up its rates, you’ll be insulated from these changes, but you’ll also miss out on savings if the rates are lowered.

A variable interest rate means that your payments could rise or fall with changes in the interest rate. It’s good when they fall, of course, but not so good when they rise, although you’ll be informed in plenty of time before changes are applied.

When you’re comparing personal loans, you should always use a calculator to work out your ideal amounts and repayment terms alongside the interest rates involved. With variable loan calculations, you should factor in rises of three per cent p.a. to make sure you’re still able to afford your repayments.

Secured and unsecured personal loans

A secured personal loan is guaranteed with an asset that you own. If you fall behind on payments, the lender can seize the asset and sell it to cover your deficit. Car loans are secured by the vehicle itself, for example.

Unsecured loans don’t ask you for any security, but as the lender sees this loan as slightly riskier than a secured loan, you’ll receive a slightly higher interest rate to reflect this. If you default on an unsecured loan, your lender can resort to legal action.

Applying for a personal loan

You can apply for a loan in person at your bank branch, over the phone or online. At the moment, online loans tend to have the lowest interest rates, especially if you choose an online–only lender.

It’s important to remember, however, that every credit application you make might leave a footprint on your credit report, so make sure that you fit the criteria of the loan before you apply.

You might get conditional approval and a rate quote before you apply

Many lenders will give you a rate quote and conditional approval before you apply, which can help you to decide if the rate is right for you.

You need to have to hand your passport or a similar form of ID, your bank and credit card statements, your proof of employment, payslips or tax returns, utility bills and the details of any credit agreements you already have.

Things you need to think about

Can you afford the repayments?

Personal loans have lower interest rates than credit cards, but even so, can you afford the repayments on the amount you need? This is where a comparison site comes in, because you shouldn’t just head straight to your own bank as other providers might have better rates and terms.

Always examine the comparison rate

When you’re comparing loans, you’ll see the headline rate and very often a comparison rate. The comparison rate is the actual rate you’ll pay when the fees and charges involved with the loan are combined with the headline rate.

What are the fees?

Lots of lenders apply fees to help to reduce the risk to them of lending you the money. You might pay an application fee, as well as account–keeping fees, monthly maintenance fees and early repayment fees.

You should also look at the missed or late payment fee schedules involved. Hopefully you won’t pay any late fees, but it’s always good to know what to expect.

InfoChoice’s personal loan picks for August

The Harmoney Unsecured Personal Loan offers fixed interest rates starting at 6.99 per cent p.a. (comparison rate 7.79 per cent p.a.) on loans ranging from $2,000 to $35,000. Repayment terms vary from three to five years and there’s an application fee of $500.

The NRMA Secured Personal Loan offers variable rates starting at $6.99 per cent p.a. (comparison rate 7.70 per cent p.a.) on loans ranging from $5,000 to $7,000,000 with repayment terms of one to seven years. You can use several different types of assets as security and there may be early repayment fees.

The Now Finance Unsecured Personal Loan is ideal for borrowers with excellent credit looking for a debt consolidation product. It offers interest rates starting from 6.95 per cent p.a. (comparison rate 8.57 per cent p.a.) on loans ranging from $5,000 to $40,000 for two to seven years. There’s an application fee of $495 and a monthly fee of $13.

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