Compare Personal Loans

How does personal loan work

Personal loans are designed to give you access to funds for a specific purpose such as holiday, car or home renovation.  Typically these loans are small in nature and generally run for between one and seven years.   To secure a loan, you will need to submit an application which will be assessed to determine your capacity to meet the debt repayments.  You will then need to sign a contract which confirms that you understand and acknowledge the interest rate, fees and charges and your obligations to make the repayments.

Check the interest rate, fees and charges

Before entering into a loan contract, it is vital that you understand and review the rates, fees and charges associated with the loan.

Interest Rate

The institution will publish an interest rate.  That is what it will cost you to borrow the funds.  When you repay the loan each month you will repay a portion of the funds you borrowed as well as an interest charge.  The interest you pay over the entire loan can be calculated by multiplying the interest rate with the period of the loan you are signing up for.

Fees and Charges

 There are various fees and charges that can be attributed to loans by providers (excluding banks, credit unions etc.)  These fees and charges vary according to the size of the loan.

  • For loans less than $2000 no interest is payable and the maximum amount that you can be charged is 20% of the loan as an establishment fee, 4% of the loan as a monthly account keeping fee, government charges, and fees if you default,
  • For loans between $2001 and $5000 the maximum amount that you can be charged is a consolidated establishment and account keeping fee of $400 and an annual interest rate of 48% which incorporates all other fees and charges,
  • For loans above $5000 with loan terms of more than two years the maximum amount that you can be charged is 48% annually (incorporating any establishment, fees or charges).

Find out the term of the loan

Personal loans are often an attractive option for people wanting to borrow funds without the higher costs that are associated with credit cards.  You need to be mindful though that the longer the loan, the more interest you will pay and at some point this might negate the savings you made not using a credit card.  For this reason, when comparing loans, compare the same loan period to get an accurate comparison of the costs.

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Read your credit contract

As outlined earlier you will be asked to sign a contract before the funds are released to you.  You should read the contract carefully so that you understand and can confirm that the loan reflects what was negotiated with the institution.  The contract should clearly outline the amount you have borrowed, the interest rates, fees, and charges that you will incur as a result of borrowing those funds, the amount of the repayments and the date or period in which they are due, and the period of the loan.


How much can I borrow?

In order to determine how you much you can borrow we recommend that you use a borrowing capacity calculator found here [insert link].

Some of the factors that will impact on your ability to borrow money include how much you earn, what assets you currently own, if you have any savings and where you have that money invested, if you are employed and how long you have been employed, your current monthly expenses including other repayment obligations, and the number and age of your dependents.

 

How can I improve my chances of the loan being approved?

While there is no guarantee that your application will be approved, there are some things you can do to give yourself every opportunity to secure a positive response from the institution including:

  • Determine how much you can borrow so that you know what you can afford to repay, and what the lender is likely to approve,
  • Keep you bank accounts and other repayments in good order so that they don’t have any reason to query your capacity to repay the debt,
  • Ensure that any bills you have are paid on time so that you do not register any defaults.


The types of personal loans that are available to you

 There are two main types of personal loans that you can access. Secured and unsecured loans.  Secured loans are lines of credit that have an asset attached to them. If you are purchasing a car with the funds, then typically the car will be used as security against the loan.  In the event that you do not make your repayments, then the institution that has provided the line of credit to you, has the legal right to repossess the car from you and sell it in order to retrieve their funds

Unsecured loans do not require you to attach an asset to the line of credit, but at times the application process is more stringent (making it harder to meet the application requirements and get approval) and the interest rate is typically hire than a secured loan, as the intuition charges you a higher rate given that they have a perceived higher level of risk that you may default on the loan and there is no asset that they can use to retrieve their funds.


What makes a loan competitive?

When you are looking for a person loan you might want to consider:

  • Comparing the interest rate with other personal loans available in the market,
  • What the fees and charges are, and questioning if they are one time fees, or will be incurred for the life of the loan,
  • How often you need to make payments, and if you can make additional payments or pay out the loan early, without incurring an additional fee,
  • If it suits your requirements in terms of the number of years you can borrow the money for and if you will get a lower rate for taking out a loan for a longer period.

What documents will I need when applying for a personal loan?

To secure a personal loan you will need to submit a credit application.  The provider (this could be a bank, credit union, building society or other financial institution) will ask you to provide information that will help them to verify that you have the capacity to repay the debt, while also ensuring that those payments will not place you in a position of financial stress.

The institution (or if you use a broker to liaise with several institutions on your behalf to secure the best loan to suit your needs) will ask you to provide:

  • Proof of identify documents such as a Driver’s License, Passport, Birth Certificate,
  • Proof of income documents such as payslips, bank statements and tax returns if you run your own business.

You will also need to provide information about other financial obligations you have each month including credit card limits, mortgage payments, or car loan payments etc.

The application process for a personal loan can take anywhere from a few minutes to a few weeks.  You should contact your provider if you have not heard from them after 10-14 days.

Check your credit provider is licensed

It is important that you use a broker and / or institution that is licensed with the Australian Securities & Investment Commission. You can check their license by conducting a search on ASIC Professional Register or by contacting them by phone.

Commonly Asked Questions

This is a question you should direct to the specific lender you are borrowing funds from each lender has their own application and approval process.  If you have a specific timeline you are working towards, then perhaps talk with the lender or your broker to see if they can arrange to get the funds to you within that timeframe.  If not, you might want to consider another lender.
Interest rates vary from week to week, month to month, year to year.  As we suggested earlier, we suggest that you compare providers by looking at rates using the same loan periods.  This will tell you who is being more competitive.
In the event that you fail to make a repayment the lender will contact you and ask you to make arrangements to bring the loan into good standing.  If this occurs several times the lender may take enforcement action to repossess the asset in the event that you secured a car or other asset against the loan. If you experience difficulty in making your weekly, fortnightly, or monthly payment then you should contact your lender or broker immediately.  Most lenders are happy to put temporary arrangements in place to assist you so that you can maintain the loan in good standing.
While banks often have government protection surrounding their treatment and management of customer funds, and credit unions traditionally offer lower fees, you should not discount private lenders either.  Be sure that the lender you use is licensed though, so that you can be confident that they subscribe to and work in concert with government regulations surrounding lending.
If you have entered into a variable rate contract then yes the lender can change the interest rate by providing you with sufficient notice (the amount notice and the way that they inform you should be outlined in your contract).  You should check if you are entering into a fixed (rate will not change) or variable (rate can change) loan.
Before signing your contract it is best to review all of the fees and charges associated with the loan.  The fees and charges section in the contract will tell you if there are any penalties for additional repayments over and above your required payments, or penalties if you want to close out the loan early.  Remember though that sometimes the penalty you incur for paying out a loan earlier than the full term, can still work out cheaper than paying interest for several years.
While there is a no hard and fast rule about this because a lender will look at both your income and your expenses before making a decision, in general, most lenders would look for an applicant to have a minimum income of around $35,000. It is always best to talk with your lender about your individual circumstances.
Personal loans can be secured for a range of purposes including cars, holidays, home renovations and education expenses.  Unless you are taking out a secured loan you don’t need to disclose the reason for the loan although by being up front about your needs, the broker or lender will often be able to identify loan products that are best suited to your needs.  Published loans are often just a proportion of the lending products that are available.