Best Personal Loans in Australia

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    What is a personal loan?

    Many Australians use personal loans for making important purchases or stabilising their finances. However, these loans come in many forms and it can often be tricky to compare personal loans from different companies. The goal of MNY is to help you access the best personal loans for your needs.

    A personal loan is a way for an individual to borrow money for various purposes. The money must be repaid, along with loan interest and fees, within an agreed-upon time frame. Most loans range between $2,000 and $100,000 and last between 1 and 7 years.

    Personal loans come in many forms: secured, unsecured, fixed-rate, and variable-rate, just to name a few. Interest rates on personal loans vary widely based on the lender you choose, your financial circumstances and on the RBA cash rate, but they are typically a lower-cost option compared to borrowing with a credit card. Personal loans can also be obtained by borrowing money from friends and family.

    What can I use a personal loan for?

    Personal loans are typically used for a significant life event or a major expense. These could include holidays, weddings, car purchases, boat purchases, medical costs, education costs, home renovations, or debt consolidation. When you compare personal loans, you have to think about what you’ll be using the loan for.

    What are the main types of personal loans?

    There are two main categories that personal loans fall into:

    • Secured personal loans

      This loan type requires a form of collateral, such as a car, which serves as a guarantee for the loan provider. If the borrower fails to make payments, the lender can reclaim the collateral and sell it to recoup its money

    • Unsecured personal loans

      This loan type requires no collateral, meaning less security for the lender. Because of the increased risk, lenders usually charge higher interest rates on unsecured loans

    More options when comparing personal loans

    Personal loans are designed for different purposes and with different customer bases in mind. To compare your options and learn which one is right for you, it’ll help to understand the basics of each loan type.

    Low interest rate loans These loans offer particularly low interest rates, but remember to always read the fine print. Oftentimes the low interest rate will be for a limited period and will then revert to a higher rate. Also watch out for extra fees and other charges.

    Co-signed & joint loans This loan type allows potentially ineligible borrowers to access funds in partnership with a second person. A co-signer backs the loan but does not have access to the funds, while a co-borrower is able to use the funds in addition to guaranteeing the repayment.

    Guarantor loans This loan type is similar to a co-signer loan, in which a separate party is supporting the borrower’s loan application. However, a co-signer takes responsibility immediately, while a guarantor is only responsible in the event of extended nonpayment.

    Student loans This loan type is intended for university students seeking to cover education-related expenses. Note that if you use personal loans to cover tuition, your payments will begin while you are still in school, since these loans do not have deferred repayment.

    Debt consolidation personal loans This loan type is a way of restructuring debt, usually to obtain more favourable interest rates. Your new lender will pay off your old debts (e.g multiple credit cards, vehicle loans and other personal loans) and you will begin making payments to that new lender.

    Overdrafts and line-of-credit loans A line of credit works like an instant cash loan: you have a pre-approved borrowing cap and you are only charged interest on the amount borrowed. An overdraft is a line of credit attached to a particular transaction account.

    Types of personal loan interest rates

    When searching for the best personal loan rates, it’s important to distinguish between the different kinds of rates available.

    • Fixed rate personal loans

      This loan type features an interest rate that stays the same for the duration of the loan period. A fixed rate has the advantage of stability and predictability throughout the loan.

    • Variable rate home loans

      This loan type features a fluctuating interest rate that the lender can move up or down at any time With a variable rate loan, you’ll benefit if rates go down, but pay more if they increase.

    What should I consider when I compare personal loans?

    The points below describe the main factors worth paying attention to when searching for the best personal loan.

    • Interest rate: This represents the percentage of the original loan amount that you will be paying back on top of what you actually borrowed. A higher interest rate will mean more money paid back overall.

    • Fees and charges: Separate from the loan amount and the interest, some lenders charge application and establishment fees, monthly account maintenance fees, late payment fees, or even early repayment fees.

    • Comparison rate: This rate incorporates the base interest rate with the fees and charges to more accurately reflect the true cost of the loan. It is more comprehensive than the advertised interest rate.

    • Loan term: The amount of time you have for repayment is known as the loan term, and usually lasts 1 to 7 years. A longer loan term usually means smaller individual payments, but more money owed overall.

    Personal loan features

    Beyond the basic parameters of a loan, you should spend some time understanding the extra features that a lender offers. Some of them might have no impact on you, while others may prove extremely significant for your financial plans.

    • Payment flexibility: Many lenders allow you to choose between weekly, fortnightly, or monthly repayments. One strategy is to match the repayment frequency with your pay schedule at work.
    • Extra repayments: In some cases, borrowers can make additional payments towards their balance owed without incurring penalties. This can help pay off the loan faster and avoid more interest accumulating.
    • Redraw facility: If extra repayments have been made towards the balance, certain lenders will allow the customer to re-borrow that money for their use. This provides access to additional funds for the future.
    • Loan restrictions: You may be prohibited from using the money for particular things, such as gambling or stock market investments. Be sure to learn about any restrictions on what can be purchased with the funds.

    There are many personal finance resources and tools that can help you learn more about which loan features you should prioritise.

    What do I need to apply for a personal loan in Australia?

    Since a personal loan is a big financial undertaking, there are several documents you’ll need for an application. These include:

    • Proof of identity (driver’s licence, passport, or other government ID)
    • Proof of income via recent payslips and/or bank statements
    • Recent credit card statements to assess your spending patterns
    • Current financial assets and liabilities

    You should also note that there are certain eligibility requirements for personal loans. These will vary for each provider, but generally, lenders require that you:

    • Be 18 years of age
    • Be an Australian citizen or permanent resident
    • Be employed or have another source of regular income
    • Have a strong credit score

    Read more about personal loans

    Here are some of our most popular articles on personal loans. Feel free to browse through them and learn more about the different types of personal loans, how to get a personal loan, and how to compare personal loans.

    Getting the best personal loans FAQ

    Will my credit score affect my personal loan application?
    Yes, almost always. Lenders rely on your financial history as a predictor of your financial future. They will want to learn about past loan repayments, defaults, bankruptcies, and outstanding debts. Maintaining a strong credit score is the most direct way to access the best personal loan rates.
    Can I get a personal loan if I have bad credit?
    Yes, but it might be more difficult. Customers with bad credit will see certain applications rejected, or they may be offered higher interest rates and stricter collateral requirements. Bad credit personal loans are often less flexible for the consumer, since lenders are risk-averse.
    Personal loans vs credit cards: which one is best?
    A personal loan is often better for a large, specific purchase, such as a car or a wedding. You will usually see better interest rates on a loan than on your credit card. Meanwhile, credit cards are better for smaller, ongoing expenses.
    What are green loans?
    These are loans that offer a lower rate for customers making eco-friendly purchases. Green loans can be used to finance the likes of solar panel installations or other energy-efficient home renovations.
    What will happen if I default on my loan payments?
    If you are missing payments, your loan will be in a delinquent status and you might eventually risk a default if you fail to pay. This will be a major hit to your credit history. Be sure to work with your lender and explore options for avoiding default before things get that far.

    Personal loan comparison takeaways for savvy consumers

    Personal loans are a valuable resource for Australians looking to make lifestyle upgrades and stay on top of their finances. Personal loans come in many shapes and sizes and offer a diverse array of features, so it’s important to find one that matches your specific needs. Equipped with this knowledge, you will be able to find the very best personal loans in Australia.

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