Should credit crazy Aussies consider personal loans?

Should credit crazy Aussies consider personal loans?

New RateCity research has lifted the lid on a nasty spending habit in Australia – credit card splurges! And while it’s hard to get by without a credit card these days, many Aussies are missing out on saving thousands because they are turning to their piece of plastic for their borrowing needs – instead of comparing low-interest personal loan options.

Twenty is the new worry age for financial debt, as young Australians sign up for their first credit cards earlier and earlier. Our data revealed that 42 percent of young people under the age of 24 have between $10,000 and $30,000 of personal debt, not including a mortgage.

So in the age of spend now, think later; how can personal loan options assist to curb the impulsive credit card borrowing trend?

Consolidating your debt

If you are finding yourself knee-high in debt, with a couple of credit cards to manage – consider consolidating your credit card debt with a personal loan.

Look for a low interest rate personal loan so you can roll over all of your debt into the one low-rate loan. This way you will be better able to manage your debt, pay it off and monitor further expenses.

Something to remember is that some credit card providers advertise balance transfers with zero percent interest for a set period of time, which may seem like an appealing option – but only for the disciplined. If you can commit to paying off your debt in the set zero balance period – this could be a valuable option but be aware, after the set period expires, the credit card revert interest rate will be much higher. So do you research and make sure you are committed to paying it off in time. 

Credit card balance transfers can also be a great way to get on top of your existing debt – if you can commit to restricting your spending and making regular repayments. Always compare both credit card and personal loan options to find which one will suit you.

Controlled repayments

If you have a tendency to overspend, splurge or succumb to impulse buys and you have trouble paying off your credit card each month, then a personal loan may be better suited to you.

Personal loans have set repayments so you will be forced to regularly pay down your debt – a great thing for impulsive spenders.

Fees and charges

Personal loans often have lower interest rates than credit cards but make sure you check the fees and charges. Fees and charges will impact the overall amount you pay off your loan so make sure you compare a range of personal loans to find one with a low interest rate, as well as fees and charges.

Borrowing term

How long do you plan on taking to pay off your loan? If you don’t have the funds upfront to pay for your big purchases on your credit card, you may be better off looking for a low interest rate personal loan so that you can pay if off over time but not incur hefty interest rate charges.

Just remember, the longer you take to pay off your loan, the more you will wind up paying in interest.

Choosing between a credit card and a personal loan will come down to your personal situation, spending habits and the size of the debt you carry. As always, run a comparison online to compare your borrowing options, so you can find a great low-rate deal and get back on top of your debt.

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Learn more about personal loans

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.

Are there alternatives to $2000 loans?

If you need to borrow $2000 or less, alternatives to getting a personal loan or payday loan include using a credit card or the redraw facility of your home, car or personal loan.

Before you borrow $2000 on a credit card, remember that interest will continue being charged on what you owe until you clear your credit card balance. To minimise your interest, consider prioritising paying off your credit card.

Before you draw down $2000 in extra repayments from your home, car or personal loan using a redraw facility, note that fees and charges may apply, and drawing money from your loan may mean your loan will take longer to repay, costing you more in total interest.

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 do credit scores have to do with personal loan interest rates?

There is a strong link between credit scores and personal loan interest rates because many lenders use credit scores to help decide what interest rates to offer to potential borrowers.

If you have a higher credit score, lenders will probably classify you as a lower-risk borrower. That means they’ll be keen to win your business, so they may offer you a lower interest rate if you apply for a personal loan.

If you have a lower credit score, lenders will probably classify you as a higher-risk borrower. That means they might be concerned about you defaulting on the loan and costing them money. As a result, they might protect themselves by charging you a higher interest rate.

What are the pros and cons of bad credit personal loans?

In some instances, bad credit personal loans can help people with bad credit history to consolidate their debts, which can help make it easier for them to clear those debts. This is because the borrower might be able to consolidate several debts with higher interest rates (such as credit card loans) into one single debt with a lower interest rate and potentially fewer fees.

However, this strategy can backfire if the borrower spends the loaned funds instead of using it to repay the new loan. Another disadvantage of bad credit personal loans is that they have higher interest rates than regular 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 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.

Is it hard to improve your credit score?

It can be hard to improve your credit score, as it usually requires sacrifice and discipline, but hard doesn’t necessarily mean complicated. Some simple ways you can give your credit score a boost include closing extra credit cards, reducing your credit card limit, pay off any loans and make loan repayments on time.

As a general rule, the lower your credit score, the more remedies you can apply and the greater the scope for improvement.

Can I apply for a quick loan online?

While some lenders will require you to provide paperwork in person, many lenders will allow you to make an application for quick personal loan online. You’ll still need to provide information on your identity, income, and loan purpose in most cases.

Can I get a fast loan if I’m unemployed or on Centrelink?

Even if a lender has no credit checks, they will usually still need to confirm you can afford to repay a fast loan on your income before they’ll approve your application.

If 50% or more of your income comes from Centrelink payments, you may find it more difficult to have a fast loan application approved. Consider checking with the lender before applying to confirm if they lend to people on Centrelink.

Can I get a $4000 personal loan if I’m unemployed or on Centrelink?

Before most providers of personal loans or medium amount loans will approve an application, they’ll want to know you can afford the loan’s repayments on your current income without ending up in financial stress. Several lenders don’t count Centrelink benefits when assessing a borrower’s income for this purpose, so these borrowers may find it more difficult to be approved for a loan.

If you’re unemployed, self-employed, or if more than 50% of your income come from Centrelink, consider contacting a potential lender before applying to find out whether they accept borrowers on Centrelink.