Do you have a shortfall in your budget for a new car, home renovations, a wedding or a holiday? Don’t fret. A personal loan is sure to offer the much-need financial fix. But, how exactly do you get one in Australia?
With plenty of options out there, all offering different terms and interest rates, it’s vital to shop around to secure the best deal. For some people, that can be a tedious experience, particularly when it’s your first time looking for a loan. We’re here to help.
What Are Personal Loans?
There are different types of personal options, and your option depends on what you want the money for. Inasmuch as these loans are flexible when it comes to using them, some creditors might want to know the intended use for the loan.
The common denominator is that you borrow money, and make repayments together with any interest and charges over the agreed period. The types include:
- Secured personal loan – This loan requires collateral when applying for it and your creditor can sell the asset to recover their money if you default.
- Unsecured personal loan – You don’t need collateral; the creditor relies on your income to service the loan.
- Car loan – A loan for buying a car
- Short-term loan – A flexible loan for most purchases.
- Overdraft – This loan is usually attached to a transaction account.
- Line of credit – With this loan, the creditor only charges interest on the amount you use and not what you borrow.
You also need to know that there are two types of interest rates here: fixed-rate and variable rate. With fixed-rate, your interest doesn’t change over the course of the loan while a variable rate changes with changes in the market rates.
Meet Eligibility Requirements
Creditors have different requirements for borrowers to meet if they wish to get approved. Your creating score should be good, and anything between 622 and 1200 is acceptable. If you have bad credit, there are loan options for you, but the terms and rates can be high.
You’ll also need to provide your financial details, such as payslips, income sources, bank statements, and copies of other loan contracts. This information is necessary to verify that you can meet your loan obligations without hardship.
If you don’t meet the minimum requirements, you can still apply with a guarantor. This can be your family member, friend, or whoever who accepts to take up that responsibility.
Review Rates and Fees
Before applying for any loan, be sure to review the interest rates and fees. Keeping your repayments to a minimum will help you meet your obligations easily.
Creditors usually charge an annual percentage rate (APR) for the loan. This can be anything from 6% to 36%, though you can get offers as low as 2 percent. Be sure to multiply the rate by the term of the loan to see the interest you will pay by the end of the loan’s life.
Loans also have fees, and the fee depends on the amount you want. Fees on loans $2,000 or less are capped at a maximum of 20 percent for establishment fee and 4 percent for account keeping fee. Your creditor should provide their specific fees.
Loans that are $5000 or more must not have fees more than 48 percent. You should review these fees and pick a personal loan that’s most reasonable.
Understand the Terms and Contract
Personal loans tend to offer lower interest rates than other types of credit, and the repayment periods tend to be longer. However, longer periods can mean more interest payments for you. Be sure to pick a term that allows you to make the minimum amount in the total interest payments.
Before signing the contract, ensure all the details are accurate, particularly interest rates, charges, and fees. Check the term of the loan to ensure it’s the option you picked, and the amount you borrowed should also be clearly written.