Should I get personal loan protection insurance in Australia?

Should I get personal loan protection insurance in Australia?

If you’re planning on buying a car, renovating your home or going on a vacation, you might have considered getting a personal loan to take care of your expenses. While it can be a great way to meet your short-term financial goals, it comes with several add-on fees and strict payment rules. Missing even one repayment means you might end up paying more in the long run and it could affect your credit rating too.

Sometimes events beyond your control might prevent you from meeting your personal loan obligations. But with personal loan protection insurance, you can protect yourself. Read on to know more about how you can benefit from personal loan protection insurance.

What is personal loan protection insurance?

Unexpected events, such as being unable to work because of an injury or illness, can make fulfilling your loan obligations a challenge, but personal loan protection insurance can provide cover. You can purchase this optional insurance either at the time of applying for a personal loan or after the payment commences.

The actual coverage that you’ll get depends on the policy that you select as well as your personal circumstances. Typically, personal loan protection insurance would cover you for: 

1. Losing your job

If you lose your job suddenly, you might be able to claim for support on your loan repayments. Ask your provider for coverage details and check if there are any conditions for seasonal or contract work. This insurance will not cover you if you resign or have accepted voluntary redundancy.

2. Critical illness or accidental injury

If you fall sick or are injured, leaving you unable to work, you may be able to claim financial assistance to meet your loan obligations. Depending on your policy, your claim may cover you until your loan is paid off, for a defined period, or until you’re back at work. There could be a waiting period from the time of illness or injury to when you can claim, or there could be exclusions, especially around pre-existing conditions. Be sure to read the policy document carefully at the time of getting the policy.

3. Loss of life

Check if your policy will cover the balance of your loan if you pass away suddenly. Read the policy document to be aware of exclusions around pre-existing conditions, suicide, as well as the maximum payout possible.

What is not covered by personal loan protection insurance?

Every policy is different and will have a different set of guidelines. However, it is prudent to check beforehand and be aware of potential exclusions at the time of purchasing the policy. Some typical exclusions are:

  • If sickness or injury occurs within a certain amount of days of your policy commencing
  • Any pre-existing medical conditions that leave you unfit for work
  • Seasonal employment or fixed-term contract
  • Quitting your job, retiring or agreeing to voluntary redundancy
  • Working less than a fixed set of hours per week when your policy commences
  • Pregnancy and childbirth
  • Self-inflicted injury or suicide
  • War-related claims

How much will personal loan protection insurance cost you?

Premiums for personal loan protection insurance vary from provider to provider and get calculated based on several factors, such as:

  • Type of cover and features: You can choose between cover for life, accident and sickness, or involuntary unemployment, and each of these options or combinations will come at different costs.
  • Your age: Your age at the time of taking out the policy might also be considered when calculating your premium.
  • Your loan amount and term: Your premium will be calculated depending on the size and term of your loan.
  • Monthly repayment amount: Your monthly repayments will also impact the total premium that you pay.
  • Single or joint policy: If your provider has the option, you could choose to get a single or a joint policy, and the premium could change accordingly.

What should you keep in mind when selecting personal loan protection insurance?

It is important to choose the right personal loan protection insurance depending on your exact needs. As you shop around for the policy that fits your requirements, keep the following points in mind:

1. See that the personal loan protection insurance suits your needs

Does the premium you’ll pay for this insurance offer you value for money? Check whether the payout will be paid to you or directly to the credit or loan provider. Some payments are also made in instalments, which could stop after a period. Then you will need to manage repayments after that. Also, the payout amount could be calculated as per the amount you owe at the time of the insured event, and not when you lodge the claim. Any extra amount added to the loan in the interim may not be covered.

2. Pre-existing conditions may be excluded  

Check for exclusions of any pre-existing condition that you might have that could leave you unfit for work. In that case, you’ll not be able to make a claim.

3. Your existing coverage

You might already have similar coverage elsewhere, such as income protection insurance, and this insurance may cover you for your loan repayments. If you have life insurance, you may be covered for your loan balance if you pass away.

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Learn more about personal loans

Can I merge my personal loan with my home loan?

Yes, you can refinance your home loan and, in the process, merge or consolidate your personal loan and home loan. By doing so, you can lower the number of debts you have, and you may also reduce the total interest you have to pay.

However, you should consult a financial advisor or a mortgage broker to confirm that you are decreasing your total outstanding debt, including interest payments. The repayment term for a home loan can be much longer than that for a personal loan, and by merging the two, you could be repaying a higher amount over the full term.

What is a personal loan?

A personal loan sits somewhere between a home loan and a credit card loan. Unlike with a credit card, you need to sign a formal contract to access a personal loan. However, the process is easier and faster than taking out a mortgage.

Loan sizes typically range from several hundred dollars to tens of thousands of dollars, while loan terms usually run from one to five years. Personal loans are generally used to consolidate debts, pay emergency bills or fund one-off expenses like holidays.

Can I repay a $3000 personal loan early?

If you receive a financial windfall (e.g. tax refund, inheritance, bonus), using some of this money to make extra repayments onto your personal loan or medium amount loan could help reduce the total interest you’re charged on your loan, or help clear your debt ahead of schedule.

Check your loan’s terms and conditions before paying extra onto your loan, as some lenders charge fees for making extra repayments, or early exit fees for clearing your debt ahead of the agreed term.

Can you refinance a $5000 personal loan?

Much like home loans, many personal loans can be refinanced. This is where you replace your current personal loan with another personal loan, often from another lender and at a lower interest rate. Switching personal loans may let you enjoy more affordable repayments, or useful features and benefits.

If you have a $5000 personal loan as well as other debts, you may be able to use a debt consolidations personal loan to combine these debts into one, potentially saving you money and simplifying your repayments.

Should I get a fixed or variable personal loan?

Fixed personal loans keep your interest rate the same for the full loan term, while interest rates on variable personal loans may be raised or lowered during your loan term.

A fixed rate personal loan keeps your repayments consistent, which can help keep your budgeting consistent. You won't have to worry about higher repayments if your rates were to rise. However, on a fixed loan you’ll also potentially miss out on more affordable repayments if variable rates were to fall.

Is a personal loan a variable or fixed-rate loan?

Depending on the personal loan lender, you may be able to choose between a fixed and a variable interest rate. But, there are a few distinct differences between the two, so it’s important to weigh up the pros and cons before deciding on what’s right for you.

A fixed interest rate loan gets you the convenience of knowing exactly how much you need to repay each fortnight or month. On the other hand, you generally won’t be able to make lump sum or advanced payments to close your personal loan early - or at least not without a penalty.

With a variable interest rate personal loan, you may be able to get a longer loan repayment term, with the option of paying off the loan early. You typically won’t need to pay any additional charges for an early full repayment either. The potential disadvantage with an interest rate that can change is that your repayment is not entirely predictable, as it can fluctuate with the market. However, you’ll likely have more options as more lenders offer a variable interest rate personal loan.

Does refinancing a personal loan hurt your credit score?

Personal loan refinancing means taking out a new loan with more desirable terms in order to access a more competitive interest rate, longer loan term, better features, or even to consolidate debts.

In some situations, refinancing a personal loan can improve your credit score, while in others, it may have a negative impact. If you refinance multiple loans by consolidating these into one loan, it could improve your credit score as you’ll have only one outstanding debt liability. Your credit may also improve if you consistently pay the instalments on time.

However, applying to refinance with multiple lenders could negatively affect your credit if your applications are rejected. Also, if you delay or default the repayment, your credit score reduces.

What is a bad credit personal loan?

A bad credit personal loan is a personal loan designed for somebody with a bad credit history. This type of personal loan has higher interest rates than regular personal loans as well as higher fees.

How long does it take to get a student personal loan?

Completing an online personal loan application can often take anywhere from 10 minutes to 1 hour. Depending on your lender, processing your personal loan application may take anywhere between 1 and 24 hours. If your personal loan application is approved, you may receive the money in your bank account the following business day, or, in some cases, the same day.

Can I get a bad credit personal loan with a guarantor?

Some lenders will consider personal loan applications from a borrower with bad credit if the borrower has a family member with good credit willing to guarantee the loan (a guarantor).

If the borrower fails to pay back their personal loan, it will be their guarantor’s responsibility to cover the repayments.

Can unemployed single parents get personal loans?

It can be more difficult for unemployed borrowers to successfully apply for a personal loan. Most lenders require borrowers to have a regular income available to cover the cost of loan repayments.

If you’re self-employed, or if less than half of your income comes from Centrelink, you may not be eligible for some personal loan options. Consider contacting the lender before applying.

How can I get a $3000 loan approved?

Responsible lenders don’t have guaranteed approval for personal loans and medium amount loans, as the lender will want to check that you can afford the loan repayments on your current income without ending up in financial hardship.

Having a good credit score can increase the likelihood of your personal loan application being approved. Bad credit borrowers who opt for a medium amount loan with no credit checks may need to prove they can afford the repayments on their current income. Centrelink payments may not count, so you should check with the lender prior to making an application.

Can I include my spouse’s income on a personal loan?

If you apply for a joint personal loan with your spouse, you can include their income on the application. If approved, they then become jointly liable for the loan.

Both you and your spouse need to meet the eligibility criteria, such as income, age, and residency requirements, as stipulated by the lender. A joint loan could increase your chance of approval for a higher amount, as both borrowers’ incomes are assessed when determining borrowing capacity. 

What is the average interest rate on personal loans for single parents?

Like other types of personal loans, the average interest rate for personal loans for single parents changes regularly, as lenders add, remove, and vary their loan offers. The interest rate you’ll receive may depend on a range of different factors, including your loan amount, loan term, security, income, and credit score.