Personal Loans Guide
Welcome to RateCity's Personal Loans Guide. Whether you are interested in consolidating your debts, need some money to go on a trip overseas or for your big day, we will show you what type of personal loans are available. Read on to get some of the best deals in town
What to consider when choosing a personal loan
1. Why a personal loan might be a good idea
The benefit of a personal loan and what attracts many people to this option compared to a credit card, is that their interest rates are usually lower and they can be easier to pay off as you have an allocated time frame in which to pay the loan back.
2. Types of personal loans
Secured - If you are purchasing a new car or a large asset, then a secured loan may be for you. With this type of loan the asset in which you require the loan for, is used as security against the loan. Meaning that if you were to default on your repayments, the financial institution has the authority to repossess your asset, sell it and use the money to pay off your debt. These types of loans can sometimes be advertised at a lower interest rate than unsecured loans as they are seen as less risk to the lender.
Unsecured - An unsecured loan doesn't require any security against the loan. It is a type of loan when you require money for a holiday, to consolidate debts or for any other purpose like a home renovation. Because there is no security against the loan, they are higher risk for the lender and therefore usually come with a higher interest rate than a secured personal loan. If this is your first loan, you may have to provide a guarantor on your application to guarantee that the repayments will be met.
Variable - A variable rate personal loan is a type of loan where the interest rate is not fixed and can fluctuate. Because of this, the repayments on this type of loan may go up and down depending on the lender's discretion, which can make it difficult to set a budget. Benefits of this type of loan include if interest rates decrease, your repayments will be less, and they are usually lower than a fixed rate. However if the rate increases your repayments will rise as a result.
Fixed - Unlike variable rate loans, fixed rate personal loans offer a fixed interest rate throughout the length of the loan. The advantage of fixed rate loans is that your repayments remain the same amount throughout the term of the loan, making it easier to manage your budget. The downside to having a fixed rate however is that if interest rates overall drop, because your interest rate is fixed it is unaffected, so effectively you may pay more than you need to.
Overdraft - This type of loan is one option available where you make sure you have enough money in your account when you need it. It is a convenient way to have access to money quickly for those financial emergencies that pop up when you least expect it. You only pay interest on the money you use, however there is usually a maximum amount that you can apply for with this type of loan. The interest rate can be higher with this type of loan compared to other types of personal loans so make sure you compare.
Line of credit - This type of personal loan offers access to funds as you need them, allowing you to withdraw additional funds as required. The benefit is that you only pay interest on the money you use and not the total amount borrowed. Another good thing is that there is no need to reapply for another loan when you need more money, you can redraw on your available balance. A line of credit usually has a minimum and maximum amount that you can access, however the limit is usually higher than the maximum amount usually available with an overdraft loan.
3. How to get the best deal on your personal loan
If you are in the market for a personal loan, the best way to find the right one is by comparing deals online. Comparing personal loans online at financial comparison websites like RateCity is simple and you can do it in the comfort of your own home at a time that is convenient for you. Just visit our personal loans page, select which option you would like to search for, whether it's just compare, low interest, or debt consolidation, then simply enter in the required information so that we can filter the search results to better match your loan needs.
The results will show a list of products that best suit your criteria. You can then further filter your search by comparing the interest rates and fees, and once you find one that best meets your criteria, you can apply online. Your chosen lender will then be in touch with you to notify you of the status of your application.
4. Checklist - Steps involved in applying for a personal loan
- Work out the amount you want to borrow
- Calculate how much you can afford to make in repayments.
- Work out how long it will take to pay off, and how often you want to make the repayments (weekly, fortnightly or monthly)
- Decide whether you will require a secured (if buying an asset such as a car) or unsecured loan.
- Will a fixed or variable rate personal loan suit you?
- Compare personal loans online, look for one with a lower interest rate and lower fees.
- Organise any documentation and paperwork that is required to support you application and have this ready.
- You are now ready to apply online.
5. Star Ratings
CANSTAR star ratings are a consumer-friendly benchmark that help you compare financial products based on their rates and features. We evaluate literally thousands of products from hundreds of finance institutions. Products offering superior value are awarded five stars.
Only the top 5% to 10% of products scored using the CANSTAR star ratings methodology are awarded the prestigious five star status. As a consumer, this is your guarantee of a high-performance product.
For more information on Star Ratings, check out our Star Ratings page
Start comparing some of the best personal loans available today.