Personal Loan Comparison

Whether you need some extra cash to spend on a family holiday, home refurbishment, new car or even to consolidate debt, then a cheap personal loan is a good solution. Although best practice is to save up for something and then buy it, sometimes life just doesn’t play ball, and that’s where a personal loan can come in handy. There are no shortage of lenders in Australia, but make sure you take time to compare interest rates and repayment terms across the market before making your decision. With Money Choices it’s easy to compare personal loans from a variety of Australian banks and lenders so you can get the loan you need for less. Start your application online.

Your Guide to Personal Loans

Personal loans can be a great way to fund purchases when you don’t have the funds available straight away, but don’t want to pay the higher interest rate of a credit card. Many Australians use personal loans to fund purchases such as a new car, holiday, wedding expenses, furniture and electrical equipment. Personal loans can also be used as part of the debt consolidation process.

The Two Main Types of Personal Loans

There are two major types of personal loans available – secured personal loans and unsecured personal loans.

Secured loans: A secured personal loan is linked to an asset, in the same way that a home loan is linked to (secured by) a home. If you cannot repay the loan, the lender has the power to take possession of the asset used to secure the loan. Secured personal loans are most commonly used for the purchase of a vehicle, with the loan secured by the vehicle. The lender has the right to take possession of the vehicle if you default on the loan and cannot continue the repayments. Secured personal loans are seen as a safer option for the lender, and in most cases a lower rate of interest will be offered for secured personal loans.

Unsecured loans: An unsecured personal loan is not linked to any particular asset. This type of loan may incur higher interest rates as the loan is not secured against anything of value, such as your home.

Finding the Right Loan for You

The interest rate is one of the major factors to look at when comparing personal loans, however there are a number of other factors to consider.

Your monthly repayments will be heavily influenced by the interest rate, but you also need to take into account any ongoing monthly or annual fees. You also need to compare the establishment fees, as these will affect the overall cost of the personal loan.

Another factor influencing your repayment amount is the loan term. Loan terms can range from twelve months through to seven years. Repayments on the same loan amount will be lower for a longer term and higher for a shorter term.

Longer loan terms are generally reserved for higher loan amounts, whilst shorter terms are generally associated with smaller loan amounts. Although the loan term is set at a certain number of years, most personal loans can be repaid earlier with additional repayments.

Another factor to consider is the flexibility of the loan. Does the loan allow you to make additional repayments? Are there any break costs or early repayment fees? Do you have the flexibility to make weekly or fortnightly repayments? These are all important features of any personal loan.

The majority of personal loans issued in Australia are on a fixed rate basis, however you should still check first to ensure this is the case. A fixed rate personal loan will ensure that your repayment amount stays the same for the life of your loan.

All lenders in Australia are required to publish a comparison rate for their loan products. The comparison rate takes into account the standard interest rate as well as any ongoing and establishment costs. This allows you to more easily compare the offers from various lenders.

Three Basic Tips for Repaying Your Personal Loan

There are a number of ways to repay your personal loan sooner, which can save you time as well as money.

Pay fortnightly: This is one of the easiest ways to repay any loan sooner. Simply divide your monthly repayment by two and pay that amount each fortnight. This strategy works because there are 26 fortnights in a year, which means you will pay a total of 13 full monthly payments even though there are only 12 months in the year. This will put you ahead by one full repayment each year, helping you to repay your loan sooner and saving on interest.

Pay more than the minimum repayment: The more you can pay onto your personal loan, the quicker you will repay it and the more interest you will save. You should aim to repay as much extra as you can afford, but rounding your repayment up to the nearest $100 or even the nearest $10 will help. It may not make a huge difference, but every dollar you pay above the minimum repayment will come straight off the loan balance and save you interest.

Don’t overspend: One of the biggest mistakes you can make is to take out a loan and continue to spend frivolously. This is a dangerous thing to do as you can risk building up even more debt, most likely at a high interest rate. Assuming your habit of overspending does not change, eventually you won’t be able to continue with your loan and other debt repayments, possibly even forcing you into bankruptcy. The moral here is to make sure you reign in your spending, set up a budget that includes repaying your loans and stick to it!

Typical Personal Loan Features

The foundations of personal loans are fairly similar from one lender to the next, but the features can vary between products.

Ongoing fees: Many personal loans will have an ongoing monthly fee. When comparing fees you also need to take into account the interest rate. There’s no point choosing a loan with lower fees if the interest rate is so high that it wipes out the saving on the lower fee.

Establishment fees: Most personal loans will have an establishment fee that must be paid when you take out the loan. A personal loan with a lower establishment fee will generally be more attractive, but you need to ensure that the trade-off is not higher ongoing fees or interest.

Interest rate: The interest rate is a major factor in determining how much your monthly repayments will be. A lower interest rate will always be the preferred option, provided that the other fees don’t eat into the savings.

Repayment flexibility: It is important to choose a personal loan that allows you flexibility with repayments. Most personal loans will allow you to pay weekly, fortnightly or monthly, and many will also allow you to make additional repayments without any penalties.

Secured or unsecured: All personal loans will either be secured or unsecured. A secured personal loan is most commonly used to purchase a vehicle, with the loan secured by the vehicle.

Loan term: The loan term relates to how long you have to repay your loan. For example a personal loan with a twelve month term must be repaid within that timeframe, and the repayments will be calculated accordingly.

A personal loan can be a great way to fund big-ticket purchases without having to save a large amount of money up front. As with all financial products it is worth taking the time to do your research to find the product that will best suit your needs.