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How to make a personal loan useful over the summer

How to make a personal loan useful over the summer

The summer holidays often give us the gift of a little extra time and a bit of enthusiastic new year motivation. Which is why it might just be the perfect opportunity to get stuck into some of the items on your ever-growing to-do list.

If you’re eager to make the most of your time off but don’t have quite enough cash in the bank, you might find that a personal loan could come in handy right when you need it. Lenders offer personal loans for an abundance of loan purposes, so there’s every chance you could find one that’s right for you.

RateCity’s database offers plenty of competitive personal loans with rates currently starting from 5.35 per cent (6.21 per cent comparison rate), available to eligible borrowers for any worthwhile purpose.

We’ve put together a list of things that a personal loan might be able to help you out with this summer so you can start the new year off with a bang.

Tackling a renovation project

It’s safe to say we’ve all spent a lot more time at home this year than we likely normally do. Which means you’ve probably also had more time to notice a thing or two within your space that could do with an update.

Whether it’s a complete kitchen remodel that you’re after or the interiors just need a fresh lick of paint, a personal loan could be a viable option to get the project underway.

Reducing your carbon footprint

Speaking of renovating your home, if you’re looking to make updates of the eco-friendly variety, you might be interested to learn that there’s a specific type of personal loan for that purpose.

A green personal loan is a financial product designed to fund projects that are considered to be environmentally sustainable – such as installing solar panels or investing in energy efficient white goods.

Green personal loans also often have more competitive interest rates than regular personal loans, as lenders incentivise borrowers to ‘go green’. RateCity’s database offers green personal loans with rates currently starting from as little as 4.69 per cent (4.69 per cent comparison rate).

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Consolidating your debts

Having financial goals set for the new year is always a good idea, especially when it comes to paying down debt. If you’ve got more credit cards in your wallet than you’d like – plus maybe an existing personal loan or car loan on top of that – you could consider consolidating all of your debts into a single personal loan.

A debt consolidation personal loan could help you save money on interest charges as personal loans typically offer lower interest rates than credit cards. It could also help you avoid paying multiple account fees and make your budgeting more manageable with a single repayment.

When considering a debt consolidation loan, be sure to factor in additional charges such as break fees and establishment fees when calculating whether it’s the right move for you.

Taking a break

With state and territory COVID-19 border restrictions easing in recent weeks, it could be the perfect time to take the family on a much-anticipated holiday.

Taking out a personal loan to fund your trip could allow you to spend your time off how you like. And if it’s a relatively inexpensive getaway, you might be able to choose a shorter loan term in order to pay it off quickly.

Locking in your wedding plans

The emergence of the coronavirus pandemic might’ve put a stop to your wedding planning, but the gradual easing of restrictions could have you feeling confident enough to get back on track.

If you want to secure your first pick of wedding vendors, you’ll typically need to get in early. This generally means paying deposits well ahead of your big day, and potentially also before you’ve managed to build up enough savings. A personal loan could help with these early expenses, as well as other costs along the way, and ensure your nuptials are celebrated exactly how you envisioned.

If you are considering making use of a personal loan this summer, be sure to do your due diligence and ensure it’s the right choice for you. Search and compare your options, and consider speaking to a financial advisor for information specific to your personal circumstances.

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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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Learn more about personal loans

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 get a personal loan if I receive Centrelink payments?

It is hard, but not impossible, to qualify for a personal loan if you receive Centrelink payments.

Some lenders won’t lend money to people who are on welfare. However, other lenders will simply consider Centrelink payments as another factor to weigh up when they assess a person’s capacity to repay a loan. You should check with any prospective lender about their criteria before making a personal loan application.

How are personal loans regulated?

Personal lenders in Australia are regulated by ASIC (the Australian Securities & Investments Commission) and must follow responsible lending rules. That means they can’t lend money without making “reasonable inquiries” about a borrower’s financial situation and ensuring the loan is “not unsuitable” for them.

How long do personal loans take?

Depending on the lender, some personal loan applications can be approved in as little as one hour, or you may need to wait until the next business day. If approved, you may receive your money on the same day, the next business day, or within the week.

Where can I get a personal loan?

The Australian personal loans market contains dozens of lenders offering several hundred different products. Personal loans are available through a range of institutions, including:

There are three main ways to access personal loans. You can go through a comparison website, such as RateCity. You can use a finance broker. Or you can directly contact the lender.

What are the pros and cons of personal loans?

The advantages of personal loans are that they’re easier to obtain than mortgages and usually have lower interest rates than credit cards.

One disadvantage with personal loans is that you have to go through a formal application process, unlike when you borrow money on your credit card. Another disadvantage is that you’ll be charged a higher interest rate than if you borrowed the money as part of a mortgage.

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 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.

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.

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.

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 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.

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.

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.