Different lenders may offer different kinds of loans for a loan amount of $5000, and the kind that's right for you will ultimately depend on your personal requirements. Here are three options that may be worth considering:
Personal loans
Personal loans typically involve paying back the $5000 you borrow in weekly, fortnightly or monthly repayments over a relatively long period of time, such as 12 months or more. Between these longer loan terms and the fact that personal loans tend to have lower interest rates than other credit options (e.g. credit cards, payday loans), personal loan repayments are often relatively affordable, making a smaller impact on your monthly household budget.
Before applying for a personal loan, it's worth calculating whether paying back the $5000 over the longer term may ultimately cost you more in interest charges and fees than some of the other options. The longer a loan’s term, the more repayments you’ll need to make, and the more times you’ll be charged interest on what you owe. Take note of the loan's comparison rate to get an idea of the interest rate plus standard costs associated with the loan.
When you’re comparing lenders, it may be worth including some online-only lenders in your search. Because these businesses tend to be more specialised and have fewer overheads than their competitors, they may charge lower interest rates and fees than some other options. What’s more, your online application can be conveniently completed from home.
Secured personal loans
If you’re looking to borrow $5000 and already own an asset worth a similar amount (e.g. a car or equity in your home) you may be able to use this asset as collateral on a secured personal loan to guarantee what you borrow. While this means you risk losing your security asset if you default on the loan repayments, you may be able to enjoy a lower interest rate, as secured loans reduce the risk to the lender.
A significant percentage of car loans are secured loans, and are guaranteed by the value of the car being purchased. But, secured personal loans are offered for a variety of loan purposes outside of buying a car, as long as the borrower has a suitable asset to offer up as collateral.
If you don’t already own a suitable asset for a secured personal loan, you may need to compare unsecured personal loans and similar unsecured credit options.
Payday loans
A payday loan is a short-term loan that is usually paid to the applicant within 24 hours. Payday loans tend to come with higher fees than other loans and credit products, due to the increased lender risk.
These loans are typically reserved for emergency situations such as medical treatment, home repairs, and car repairs, when a borrower doesn't have time to go through the standard personal loan application process.
The term ‘payday loan’ implies that the borrower intends to repay the loan through future income, and generally over a shorter repayment term than a standard personal loan.
Some payday lenders cap their borrowing limit at $2000, but others have limits of $5000 and sometimes more.
