Shop around for the best personal loan

Shop around for the best personal loan

Savvy borrowers thinking about using current low interest rates to shop for a new loan or refinance old debts will need to do their homework to find the best personal loan deals.

Australia’s official cash rate target may be down to 2 per cent but rates on personal loans range from under 6 per cent, up to a hefty 18 per cent.

But personal loans are often a cheaper option than many credit cards, so how do you make sure you find the best personal loan for your needs?

1. What’s your reason for borrowing?

Loans advertised specifically for the purpose of debt consolidation (rolling all your existing cards and lines of credit into one straightforward agreement and repayment schedule) usually have a higher interest rate.

Rates can be fixed or variable on consolidation loans but they are more likely to require that you provide security. They may also have an application fee and even an ongoing fee.

You can get a cheaper loan if you have a specific purpose for borrowing such as to purchase a car or to pay for home furnishings.

2. Fixed or variable rate?

Personal loans in Australia traditionally came with a fixed interest rate and repayment term. Their attraction was that you knew exactly what your repayment schedule would be for the life of the loan. Now fixed and variable rate personal loans are available from most lenders and the decision is really up to you and your personal circumstances. A fixed rate loan will give you the peace of mind to be able to budget for the long-term whereas as variable loan might go down if there is a rate cut, but this is by no means guaranteed, and you have to be prepared for the fact it could also go up.

3. Secured or unsecured?

It is possible to find an unsecured loan with a reasonably competitive interest rate, although the cheapest loans are currently secured. That means you need to provide an asset (such as a car) as security against the amount you are borrowing. The lenders decision to approve an unsecured loan will depend on the amount you are borrowing, your credit history and ability to repay.

4. What other features should you consider?

Don’t overlook fees, including the application fee and any ongoing charges. Also check penalties for missed repayments. Make sure you are able to make extra payments but also check if a penalty applies for early repayment of the loan (particularly if it has a fixed interest rate).

If you are concerned about job security it may be worth looking for a loan that allows you to defer repayments.

To find the lowest rates online, compare personal loans at RateCity today.

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Learn more about personal loans

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.

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.

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.

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 much can you borrow with a bad credit personal loan?

Borrowers who take out bad credit personal loans don’t just pay higher interest rates than on regular personal loans, they also get loaned less money. Each lender has its own policies and loan limits, but you’ll find it hard to get approved for a bad credit personal loan above $50,000.

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.

What is an unsecured bad credit personal loan?

A bad credit personal loan is ‘unsecured’ when the borrower doesn’t offer up an asset, such as a car or jewellery, as collateral or security. Lenders generally charge higher interest rates on unsecured loans than secured loans.

Do student personal loans require security?

While some personal loans can be secured by the value of an asset, such as a car or equity in a property, student personal loans are often unsecured, which typically have higher interest rates.

Some lenders also offer guarantor personal loans to students. These loans have lower interest rates, as a guarantor (usually a relative of the borrower with good credit) will fully or partially guarantee the loan, taking on the financial responsibility if the borrower defaults.

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.

Are there low doc personal loans?

Self-employed borrowers may be eligible for low doc personal loans, which require less documentation in their application process than many other personal loan options.

It’s important to remember that though low doc personal loans may require less paperwork, you may need to provide additional security, or pay a higher interest rate.

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.

Will comprehensive credit reporting change my credit score?

Comprehensive credit reporting may change your credit score, either positively or negatively, depending on an individual's situation.

Under comprehensive credit reporting, credit providers will share more information, both positive and negative, about how you and other Australians manage credit products. That means credit reporting bureaus will be able to make a more thorough assessment of everyone’s credit behaviour. That will lead to higher scores for some consumers and lower scores for others.

What do single parents need for a personal loan application?

Much like applying for other personal loans, applying for personal loans for single parents will likely require the following:

  • Proof of identity
  • Proof of residence
  • Proof of income
  • Details of assets (e.g. car, home)
  • Details of liabilities (e.g. credit cards, other loans)
  • Loan amount
  • Loan term

Can students with no credit history get loans?

It is possible for students with no available history of borrowing or managing money to get a personal loan, though it may be more difficult as well as expensive than for borrowers with a good credit history.

Having no credit history means having no credit score. While many lenders may consider having no credit score to be better than having a bad credit score, they may still consider it riskier to lend to an unknown borrower and may charge higher interest rates or fees than to borrowers with good credit scores.