Need a personal loan? If you own your own home and have an excellent credit rating, you may be able to secure a lower interest rate.
Let's say for example, Susanna* approaches Latitude for a $22,000 personal loan to help fund her upcoming wedding.
As Susanna owns her own home, with a mortgage attached, and has an excellent credit rating, she was able to qualify for Latitude’s Low Rate Personal Loan product. This product is targeted toward safer borrowers, and so offers an interest rate that is three percentage points less than their regular Personal Loan.
Susanna chooses to secure her personal loan, rather than have it unsecured. By securing the property with an asset, she is able to knock one more percentage point off the interest rate offered.
|Loan type||Advertised rate||Comparison rate|
|Low Rate Personal Loan (secured)||9.99%||11.22%|
|Low Rate Personal Loan (unsecured)||10.99%||12.21%|
|Personal Loan (secured)||12.99% to 28.99%||14.20% to 30.13%|
|Personal Loan (unsecured)||13.99% to 29.99%||15.19% to 31.13%|
Data accurate as at 26 September 2019
Susanna may save money by paying off her loan early, but fees do apply
When she sets up the Low Rate Personal Loan, Latitude fixes the interest rate 9.99 per cent for the length of her five-year loan term.
Susanna pays a $250 establishment fee, and commits to a $13 monthly fee. Whilst these fees are small, Susanna is careful to make every repayment on time, as late repayment fees and other charges may apply.
Susanna has the option of making weekly, fortnightly or monthly payments, and decides to choose the monthly option as her salary is paid monthly.
Even though Susanna opted for a five-year term, she wanted to see if she could pay off the loan in four years, to save money.
Latitude charges an early termination fee of $300 if you pay off your loan in the first half of the term, but waives it if you pay off the loan in the second half.
|Loan term||Monthly repayments (including monthly fees)||Total repayments (including establishment and monthly fees)|
Susanna plans to pay an extra $395 per month for four years, as she has calculated by exiting the loan one year early, she could save up to $1500.
But even if she can’t make the extra repayment every month, she may still be ahead overall, which should give her some breathing room if her finances get tight for a while.
Personal loans can be costly
Australians should think carefully before taking out a personal loan, as they can be costly products with many associated fees and charges.
It’s also important to compare personal loan interest rates, because there are many providers in the market, and they offer a wide variety of interest rates.
That said, the cheapest personal loan won’t always be the best personal loan; fees, features and customer service are also worth considering when you do your research.
It's a good idea professional financial advice before applying a personal loan, as a rejected application can negatively impact your credit score.
* Susanna is not a real person. This is a hypothetical case study.