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If you’re aiming to clear your debts in the short-to-medium term, it might be worth considering consolidating your debts into one personal loan.
Non-bank lenders’ personal loans
If you automatically think about personal loans being supplied by Australian banks you should know it’s possible, and sometimes better value, to also consider a non-bank lenders’ personal loan.
What are non-bank lenders’ personal loans?
Since the banking industry was deregulated in the 1980s competition increased and lower interest rates on personal loans offered by non-bank lending organisations forced many banks to lower their own interest rates. All this is good news for you, the customer, as you have increased choice when seeking a personal loan. Often non-bank lenders’ personal loans offer an excellent alternative to banking institutions. They are still required to conform to the same regulations and rules as banks.
Why do people use non-bank lenders’ personal loans?
There are a number of reasons why you might want to apply for a non-bank lenders’ personal loan:
- You would like to be able to take out a personal loan without any associated credit card or transaction account;
- You like the fact that non-bank lenders can be more flexible when it comes to charging fees and setting rates, which can work to your advantage;
- Non-bank lenders work proactively to minimise overheads and keep costs down, for example some non-bank lenders do not have branches to service, and often these savings benefit you, the borrower;
- Many people think a non-bank lender provides a better service to the customer than a traditional bank.
What are the main features?
Individual non-bank lenders offer different products, so it’s always best to make enquiries about features such as whether the institution makes charges if you pay your personal loan off early and whether they allow you to make flexible repayments. Check if you can make interest only payments if this is attractive to you and whether there are rules applying to the purpose of your personal loan. Some non-bank lenders offer redraw facilities however they may charge you for this.
What are the pros and cons of non-bank lenders’ personal loans?
Undoubtedly applying for a non-bank lender personal loan is useful for you as a customer, as you will generally have a better, more flexible and personalised customer service if you are with a smaller institution. Remember you are not taking a bigger risk by going to a non-bank lender because they are governed by the same regulations as traditional banks.
You can compare a variety of personal loan offers from non-bank lenders just as you would compare standard bank loans. Always check that interest rates quoted are for the same amount and over the same period when making your choice. The same is true when it comes to checking fees for application and settlement, and look out for any additional charges such as an annual or monthly fee.
Non-bank lenders tend to focus on a smaller number of products than banks, so you are unlikely to get access to additional linked items such as a credit card or everyday account.
Personal Finance Writer
Alex is a personal finance writer and PR professional at RateCity, and has been writing about finance for over three years. She is passionate about closing the gender pay and superannuation gap, and aims to help young Aussies to overcome their financial apathy and better manage their finances. Alex has been published in numerous print and online outlets, including Money Magazine, Lifehacker Australia, and Business Insider.
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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.
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.
The worse your credit history, the harder you will find it to consolidate your debts, because lenders will be less willing to lend you money and will charge you higher interest rates.
However, people with bad credit histories can make debt consolidation work by following this three-step process:
- First, find a lender willing to give you a bad credit personal loan. This process will be simplified if you go through a finance broker or use a comparison website like RateCity.
- Second, make sure the interest repayments on your new loan are less than the repayments on the loans being replaced.
- Third, instead of spending those savings, use them to pay off the new loan.
Few, if any, lenders would be willing to give guaranteed approval for a bad credit personal loan. Borrowers with bad credit histories can have more complicated financial circumstances than other borrowers, so lenders will want time to study your application.
It’s all about risk. When someone applies for a personal loan, the lender evaluates how likely that borrower would be to repay the money. Lenders are more willing to give personal loans to borrowers with good credit than bad credit because there’s a higher likelihood that the personal loan will be repaid.
So a borrower with good credit is more likely to have a loan approved and to be approved faster, while a borrower with bad credit is less likely to have a loan approved and, if they are approved, may be approved slower.
Some lenders are able to approve applications with little documentation and within minutes. However, there is a catch. People who take out easy/instant loans generally pay higher interest rates and are restricted to lower amounts than people who follow a traditional borrowing process.
Failing to repay loans and bills will damage your credit score. So will falling behind on your repayments. Your credit score will also suffer if you apply for credit too often or have credit applications rejected.
You're entitled to one free credit report per year from credit reporting bodies like Equifax, Dun & Bradstreet, Experian and the Tasmanian Collection Service. You can also get a free report if you’ve been refused credit in the past 90 days.
Credit reporting bodies have up to 10 days to provide reports. If you want to access your report sooner, you’ll probably have to pay.
Different credit reporting bodies may use different formulas to calculate credit scores. However, they use the same type of information: credit history and demographic profile.
They’re likely to look at how many credit applications you’ve made, which lender the applications were for, what purpose they were for, how much they were for and your repayment record. They’ll also look at your age and postcode. They’ll also look to see if you’ve had any bankruptcies or other relevant legal judgements against you.
Your score can change if your demographic profile changes or new information is added to your file (such as a new loan application) or existing information is removed from your file (i.e. because it has reached its expiry date).
Your credit history covers everything to do with applying for loans. It includes the number of loans you’ve applied for, the amounts you’ve borrowed and your record of meeting repayment schedules.
A person is deemed to have ‘bad credit’ when they have a poor history of managing credit and repaying debts.