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Why take out a personal loan?

understand your Experian score, take out a personal loan

Why take out a personal loan?

A personal loan is a certain amount of money that you borrow from an institution like a bank or a private lender. Loans can be used to e.g. purchase a car, renovate a home, or even to consolidate debt. You pay interest to your lender as a service fee to use their money.

Your credit score determines your interest rate. With a high score, the interest rate on the personal loan will likely be lower than the interest on credit cards. Most personal loans are unsecured, so you won’t need to provide an asset as security. 

What is a personal loan?

A personal loan is a type of credit that is borrowed for various personal reasons. Unlike mortgages and car loans, they aren’t lent for any particular purpose. 

However, many financial experts advise against taking out a loan for purchasing items such as a new TV or going on a holiday. Instead, it’s best to consider a 0% interest credit card for discretionary purchases.

Personal loans are also known as instalment loans. Essentially the way they work is, if you get approved, you’ll get a lump sum of cash that you will repay over a fixed period. To determine if you’re a risky borrower, lenders will check your credit score, and analyse your income and ability to afford the loan. Borrowers with high credit scores generally receive low rates. Do you know your credit score?  Learn more about how the accounts you hold can affect your score by signing up with Tippla for no cost whatsoever.

When should I get a personal loan?

It makes sense to take out a personal loan considering it’s less expensive than other forms of credit. Once you’re confident in being able to make your repayments over the loan term, then you should apply through your lender online! 

Here are a few reasons as to why you’d take out a personal loan:

Make home improvements: You could take out a personal loan to finance your home renovation. Home improvement projects may be costly, however, you do end up adding value to your home. With a personal loan, you won’t have credit card debt or have your home as a security asset like you would with a home equity loan.  

Debt consolidation: If you’re finding yourself overwhelmed with a number of debts and several repayment dates, taking out a personal loan could pay them off at once, and as a result, you’d only have to deal with one debt repayment. Consolidating your debt into a single debt could clear your repayment schedule, help you budget more efficiently, and manage your repayment flexibility. However, note that it’s best to compare the numbers before taking out a loan to ensure you get the best deal. 

Improve your credit: There are a few ways a personal loan might help your credit score. Firstly, repayments on time show that you are a responsible borrower. Having a small personal loan while paying your credit cards on time shows you can manage your finances well. Therefore, a personal loan may help with your “account mix”. Secondly, it could potentially lower your credit utilisation ratio. This is the amount of total credit you’re using, compared to your credit limit. While you should use your credit card here and there, paying back one loan steadily makes a better impression than accumulating debt from multiple credit cards.

Buying a car: For many people, buying a new vehicle is expensive, but necessary for everyday life. If you found the right car but don’t have the funds to pay it in full, a personal loan could help find the balance between affordable and functional. 

Moneysmart’s loan calculator could help you roughly calculate your repayment amount and loan term!

What to consider before you take out a personal loan 

With all loans, you will need to meet the minimum requirements to qualify for the loan. In Australia, the basic requirements are:

– 18 years or older;

– Regular income of at least 90 days;

– You are a permanent resident or hold an acceptable non-resident visa;

– You have accessible details regarding your current financial situation. 

Before applying for any type of loan, it’s best to contact your desired loan provider to learn more about their specific requirements. 

What fees should I expect when I take out a personal loan?

Some fees come along personal loans that you’d have to pay off with your repayments. Those fees include:

Interest rates: Interest rates are the amount that a financial institution charges on top of the money that’s been loaned. After shortlisting some personal loan providers, you’ll want to compare the different interest rates.

Ideally, you want to look for a loan with a relatively low-interest rate so that you can focus on paying off the amount rather than extra interest fees. If you take out an unsecured personal loan, the interest rate will be higher than the amount on a secured loan.

Additional fees: Getting a loan comes with a range of fees associated with them. Before signing a loan agreement, you want to read the small print to be sure what you sign up for. Fees could include:

  • Establishment Fee
  • Insurance
  • Withdrawal Fee
  • Servicing Fee
  • Early Exit Fee
  • Early Replacement Fee

Not all providers charge the same. Before choosing a provider, make sure to compare fees to avoid unnecessary expenses and score the best deal. 

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Which major banks can I get a personal loan from?

major banks

Are you looking for a personal loan from a familiar bank? Almost all major banks offer different types of personal loans. 

Major banks across Australia offer a range of personal loans. Those include secured and unsecured loans,  debt consolidation, car loans and more. As soon as you decide you need to take out a loan, you have to consider which loan is best suited for your financial needs and position. Therefore, you’d want to compare different providers.

Let us help you compare Australia’s major banks and understand their must-knows about personal loans.

What banks should I consider for a personal loan?

As mentioned before, there are multiple banks to consider when applying for a personal loan. However, every bank varies and may focus on specific loans.

Your options when taking out a loan

When you look at your options, the sheer amount of providers can be overwhelming. We can help you delve into your major bank options and alternatives to find the best personal loan.

Major banks: There are four major banks in Australia – Commonwealth Bank, NAB, ANZ, and Westpac. However, many Australians consider other banks as “major” such as St. George (owned by Westpac), Bankwest (owned by Commonwealth Bank), Bank of Melbourne (also owned by Westpac), ING Direct and HSBC (owned by international financial institutions), and Suncorp.

Credit Unions: The closest alternative to taking out a loan from a major bank is borrowing from credit unions. Credit unions are non-profit financial institutions. They often offer better interest rates compared to major banks. That’s because, unlike banks, they are not running by providing dividends to shareholders. However, the one thing to note about credit unions is that you will need to become a member and become part of the union. Member rates are usually around $10 and deem worthy of the small interest rates and fees.  

Is borrowing from a major bank better?

Generally, there are no major advantages you may get from banks that you wouldn’t get with other providers. Let’s look at the pros and cons: On the plus side, banks grant you access to a local brick and mortar branch where you may conduct several financial services. Additionally, you can speak to a financial advisor in person if you need to. However, you will most likely face higher interest rates and fees with banks, than you would with credit unions.

Another common advantage of borrowing a personal loan from a major bank is that they offer higher loan amounts and terms. You are after a large loan? With banks in Australia, you may borrow up to $100,000 and have repayment of 1-10 years.

What types of personal loans do banks offer?

The three main types of personal loans offered by banks are unsecured, secured, and debt consolidation loans. We’ll help you understand each loan type and what they mean.

Secured Loans: Secured personal loans are loans that are secured against an asset that a borrower provides to the lender. The asset could either be a car, house, or valuable item such as jewellery. Those assets are known as collateral for the loan. When a borrower offers an asset, it makes providing a loan less risky to lenders. Therefore, if you don’t make your payments, a bank can seize your asset. Secured loans tend to have lower interest rates compared to other loans, because of the financial security that comes along with it.

Unsecured Loans: On the contrary, unsecured loans are smaller loans that don’t require an asset to be provided for security. However, banks will focus on your financial profile if borrowing unsecured loans. Factors such as your income, credit score, and spending habits will be thoroughly examined to determine how much of a risk you are to lend to. Unsecured loans typically have higher interest rates compared to secured loans as they are riskier for lenders.

Debt consolidation: If you have accumulated debt from multiple sources (credit card, personal loan, student loan…) payments can get overwhelming. A debt consolidation loan combines all your payments into one. This may offer you a better loan rate and only one payment to keep up with. It may even improve your credit score. 

It’s best to ensure you fit the eligibility criteria before applying for any type of loan. Unsure of how to get a high credit score? Tippla can help you!

Features to look for when getting a personal loan from a major bank

Don’t focus only on a low interest and comparison rate, there are many factors to look for when comparing loans from major banks.

Flexible repayment: The best way to pay off your loan is by personalising your repayment schedule to suit your current position. Additionally, paying off loan fortnightly rather than monthly may save you more money every year. For example, having a monthly payment of $500 will result in paying back $6,000 a year. However, if you pay $250 fortnightly, you will pay back $6,500 a year, as a result majorly reducing your loan term.

Extra payments: Having a fee-free repayment schedule that makes you make lump sum repayments will help you reduce your loan term. However, note that fixed-rate loans won’t allow extra repayments and may charge you an additional fee.

How much can I borrow?

Although you have the option of borrowing up to $100,000 with big banks, you should always ensure you can comfortably afford the repayments. Moneysmart’s loan calculator can help you determine how much your repayments will be, which can help you understand how much money you should borrow and whether you should consider a smaller amount.

Before taking out a secured loan, you should also check if you’re eligible. Regardless of the financial institution, you will most likely have to meet certain requirements as a borrower. These requirements may include things such as:

– Being 18 or over;

– Having a stable income, sometimes for a certain period before your application;

– Being a permanent resident or Australian citizen;

– The purpose of the loan.

Personal Loan Comparison

Bank Interest Rate  Comparison Rate Loan Term  Monthly Repayment
CUA Fixed:

9.88%

 10.14% 1-7 years $649.95
ING Fixed:

8.99%

 9.13% 2-5 years $639.08
ANZ Fixed:

12.45%

 13.32% 1-7 years $669
Heritage Fixed:

4.69%

 7.16% 1-10 years $597

 

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How to be eligible for large personal loans

personal loans

If you plan on consolidating your debts, buying your dream car or renovating your home, a large personal loan could be the best solution.

A personal loan is an amount of money you can borrow from a financial institution. You could borrow from banks or private lenders for specific purposes. Reasons to get a loan could be e.g. buying a car, renovating a home, or consolidating debt. You then repay the amount over an agreed term with added interest.

Compared to credit cards, personal loans have more advantages such as being cheaper and having a set repayment schedule. However, unlike credit cards, personal loans don’t offer benefits such as warranties or travel benefits. Additionally, unlike other loans, personal loans allow borrowers to make extra payments to decrease their debt and shorten their repayment schedule without incurring extra fees. 

Secured and unsecured loans

There are two types of personal loans, unsecured and secured loans. Secured personal loans are usually large amounts that are secured by a provided asset such as a car. A lender may seize your asset if you can’t repay your loan. Unsecured loans, on the contrary, are usually smaller amounts that require no asset as security. They are easier to get but often come with higher interest.

You should consider a few things before you apply for a personal loan to ensure you have the best chances for approval.

Improve your credit score and history 

The first thing lenders assess is your credit score. Your credit score is what proves whether you’re a good borrower and how much of a risk you are to lend to. Big financial institutions such as banks are stricter on their credit approval and have a set score you need to meet. However, you may find more leniency with smaller lenders. In saying that, lenders who approve borrowers with low credit scores may charge higher interest. 

Why should you improve your credit score? A high score while help you score a loan with low interest. Here are some ways you could maintain and improve your credits score: It’s best to only apply for credit when necessary. Constantly applying for credit may affect and lower your credit score. Additionally, it’s recommended you pay your pays in full and on time, as late payments will harm your credit score. Regularly reviewing and staying on top of your credit report can help you identify any issues you could resolve. 

Learn more about how the accounts you hold can affect your score by signing up with Tippla for no cost whatsoever.

Minimise your career changes

As part of your application process, lenders will require you to provide 3 months of payslip to prove you have a regular income. Constant job changes have been proved to decrease your chances of getting approved by a financial lender. Jumping from job to job reflects financial instability. Therefore, before applying for a loan, lenders recommend strengthening foundations in your career to increase your likelihood of getting a loan. 

Don’t have a large number of hard enquiries

Every time you apply for a loan, lenders will conduct a credit check or hard enquiry to determine your eligibility for the loan. Every hard inquiry will show up on your credit report and may impact it.

According to lenders, having a fair amount of hard enquiries within a short term can perceive you as financially unstable, and therefore making a risky borrower. Therefore, it’s important to limit hard inquiries conducted against you by applying to a few loans as possible. 

Apply for personal loans only when you’re ready. 

As mentioned before, it’s best to avoid too many hard inquiries by applying to a minimal amount of loans. You must also note that all loan rejection is also recorded on your credit report. Having multiple loans being rejected on your report may hinder your chances of getting approved of your next loan. Therefore, it’s best to only apply for a personal loan that you’re eligible for and has a higher chance of being approved. 

Now that you’ve improved your eligibility and increased your chances of getting approved. But stop, you should take these last steps before you apply for a personal loan!

Compare personal loans

Comparing loans is an important process in helping you find the right lender, amount, and loan term to suit your financial position and needs. Firstly, you’d want to compare different lenders and their offers. Things to look out for when comparing personal loans are interest rates (is it fixed or variable), comparison rates, loan features, loan term, additional fees, and of course customer reviews. 

Shortlist your options

After comparing your loan options, you want to then narrow your options to just a few. This can help you thoroughly assess each to finalise the best for you. You may also use a loan calculator to compare loans and choose one that best suits you. Moneysmart’s Personal Loan Calculator can help you determine your repayment schedule!

Check the lender’s eligibility requirements

After shortlisting your options, carefully look through each lender’s eligibility criteria to determine which you would qualify for. This step can help you understand your chances of getting approved when faced with several loan options. 

Submit an online application

Did you go through all the steps to improve your chances of getting a large loan? Then you are good to go. Apply online with your lender of choice, it probably won’t take much time. Many lenders offer online applications that only take a few minutes.

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Secured Loans: What You Should Know

Secured Loans

Looking for secured loans?

When shopping for a loan, an option you’d have to consider is whether you’ll take out a secured or unsecured loan. So, what’s the difference between each and what should you consider?

What is a secured loan?

Secured personal loans are loans that are ‘secured’ against an asset that you provide your lender. This asset could be a car or house and is referred to as the collateral for the loan. Offering an asset makes providing a loan less risky to lenders. The asset that you provide is seizable if you don’t make your repayments. This extra financial security usually results in lower interest rates than unsecured loans.  

What is considered a collateral asset?

Depending on multiple factors such as your loan size and lender policy, some collateral assets could include:

– Cash deposit: Much like home and personal loans, you could secure loans with an up-front cash deposit. This could also be a term deposit. 

– Property: Property ownership could be used to secure a loan. This could include your land or house, depending on the circumstances. 

– Vehicles and equipment: The most common type of collateral is usually vehicles and equipment. 

– High-value assets: Items such as jewellery or art could be used as collateral, depending on their worth and your lender policy. 

Why pick a secured loan?

You may think secured loans are risky because of the seizable asset that comes with them. However, borrowers may choose to take out a secured loan because their credit score may not be good enough for an unsecured loan. As mentioned before, due to secured loans being less risky to lenders, the interest charged tends to be lower, and your credit score isn’t required to be too high. 

Additionally, borrowers may get approved for higher loan limits with secured loans. However, you must always be careful with choosing a loan, as you’d need to plan a budget on how much you could afford. Before choosing a lender, always compare the interest rates, repayment period, and payment amount so you could find one that suits your financial situation. With car loans and mortgages, a lender sometimes won’t approve your application until they have permission to take possession of the asset if you default. 

What is an unsecured loan?

Unlike secured loans, unsecured personal loans don’t require assets to be put forward as security for the lender. However, lenders tend to focus on other factors such as the borrower’s financial profile. This could include income, credit score, and spending habits. Therefore, you will most likely be required to have a good credit score to take out an unsecured loan. Unsure of how to get a high credit score? Tippla can help you!

Due to unsecured loans being riskier for lenders, the majority will have a higher interest rate compared to secured loans. However, unsecured loans do offer more flexibility and an easier application and funding process. 

Why pick an unsecured loan?

There are many benefits you could get from unsecured loans, including:

  • No risk to your assets: Unlike secured loans, you won’t need to put forward any collateral.
  • Variety of uses: Unsecured loans are beneficial for the flexibility of its purpose. This means you could use it for a wedding or buying a new fridge. 
  • Quick application process: Unsecured loans tend to be quick, and you could apply online easily and get approved on the same day.
  • Better control over your repayments: Lenders tend to allow you to choose your repayment amount and term.

Interest rates and fees on secured and unsecured personal loans

Although personal loans can be either fixed or variable, the majority of secured loans have a fixed rate that’s usually lower than unsecured loans. The cost of a loan depends on factors such as the borrowed amount, the repayment term, and the interest rate or fees charged. Having the loan secured or unsecured also impacts these factors that determine your overall loan cost. 

Before applying for a loan

Before applying for a loan of any type, you must consider how it could factor into your budget over the life of the loan. Steps you could take to work out your budget are simple and may make taking out a loan more clearer. These steps may include calculating the total cost, understanding the additional fees or consequences of falling back on your repayments, and factoring in any hidden fees with paying your loan out early. It could be beneficial to use a repayment calculator to establish how much your repayments could be. Make sure you also add common fees such as services and establishment fees. From there, you will better understand how a loan could fit into your budget. 

Before taking out a secured loan, you should also check if you’re eligible. Regardless of the financial institution, you will most likely have to meet certain requirements as a borrower. These requirements may include things such as:

– Being 18 or over

– Having a stable income, sometimes for a certain period before your application

– Being a permanent resident 

– The purpose of the loan 

Coming soon: Tippla offers! In the meantime, take advantage of our credit school.