Your guide to getting a great personal loan
Whether it’s for home improvements, debt consolidation, a second-hand car or the holiday of a lifetime, many Australians turn to a personal loan to help them achieve their aims. What kind of loan you get depends on the loan purpose. It’s difficult to get a personal loan for unspecified reasons. Find out how to get the best one for you in this quick guide to personal loans.
Choosing the right type of loan
There are two main types of personal loan – secured and unsecured – and before you decide which one will work best for you, you need to compare secured vs unsecured loan options.
Secured personal loans
With a secured personal loan, you offer an asset, like a vehicle or a term deposit, or even equity in your property, as security. This often means you can get a lower interest rate as your collateral makes the loan less risky for the lender.
Unsecured loans don’t require you to put up any security against them; the lender examines your credit rating and decides how much they’re prepared to lend you and at what interest rate. If you have a good to excellent credit rating then you’ll find lower interest rates. If you’re average or below, then your lender will apply a higher interest rate to reflect the higher risk it’s taking on you missing payments or defaulting.
It’s not just about the interest rate
Of course, a low interest rate is great because your monthly repayments will be smaller and your total spend on the loan will be smaller. However, there’s other factors to look at. Here’s what to look out for in a personal loan.
You should always look at what, if any, fees apply. Low interest rates are certainly attractive, but if you have ongoing maintenance fees or a high establishment fee, then this money can eat into any savings you make.
The comparison rate
When you’re shopping for loans, you should always look at the comparison rate as this rate factors the fees in to the total cost of the loan.
How flexible are the repayments?
Can you pay weekly or fortnightly as well as monthly? If you can make weekly payments you can reduce your overall interest burden, but not all lenders let you do this. You also need to look at how easy it is to make your repayments. Is there online access? Do you just set up a direct debit?
Can you make overpayments or clear the loan early?
You can pay your entire loan off early if you want, but some lenders will apply early repayment fees. Similarly, you may only be able to pay a certain amount in overpayments before you’re penalised. Often variable rate loans let you pay early, but not all fixed rate loans will, so check if this is important to you.
What is the loan term and how much will be borrowing?
You need to borrow enough to meet your needs and have long enough to pay it off comfortably. However, if you borrow too much you can get into difficulties and if your repayment term is too long, you’ll pay more interest than you might need to. Most loans have terms of between one and five years, with some lasting up to seven years. Use a loan calculator to find your ideal combination of amount and repayment term so that you’re paying your loan off comfortably and without excessive interest racking up over the years.
Now you know how to choose a good personal loan, here’s how to get approved for a personal loan.
Check your credit rating
You need to make sure your rating is as good as it can be before you apply for any loans, so order your report.
Gather all your information together
This includes payslips, your ID, bank statements and your expenses, as well as the valuations of any assets you’re planning to use as security.
Shop about a bit more
Use a comparison site to make sure you’re looking at the best possible deals for you.
Make sure you fit the eligibility criteria
Lenders will have their own fine – tuned criteria, but they all share the same core requirements, such as being over the age of 18, being an Australian resident or citizen and having a steady income of (usually) at least $14,000 a year. Examine the criteria that the lenders you’re interested in set before applying.
Check how flexible the loan is
Can you pay early, make overpayments or top the loan up once you’ve paid a portion off? Will the loan fit in with your life over the next few years?
Does that low interest rate have a catch?
Lenders like to show off their low interest rates and it’s easy to overlook extra costs that can bump up your total costs. You may have a monthly fee of $10, which, over four years, means $480. With some lenders you may not be able to pay the loan off early without incurring a fee which can undo the “good work” that the low interest rate does. Always read the small print.
How to apply for a personal loan
Once you’ve spent some time comparing loans and lenders and you’ve done the maths on the loan calculator, you need to decide which product you’re going to apply for. It’s quite easy to make the application, simply hit the “Go to Site” button and take it from there.
Depending on the sort of loan you’re looking at – secured or unsecured, for example – you’ll need different information. If you’re looking at a secured loan, you’ll need to have the details of the asset you’re putting up as well as a recent valuation figure, but in the main, you’ll need:
- Your personal details, such as your name, your contact information and proof of ID
- The name and contact details of your employer
- The details of your employment, such as how much you earn annually and whether you’re full or part – time, as well as any extra freelance or weekend jobs you may have, and
- The details of any other credit agreements you have currently, as well as assets and liabilities.
The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.