Put simply, personal loans are a fast and simple way to reach your financial goals. But before you go ahead and make an application, it’s best to understand the basics and make an informed decision.
Here’s the lowdown.
What can you use a personal loan for?
In short? Just about anything. A personal loan
can fund your next trip overseas, give your home the facelift it deserves, or maybe even help you buy that ring for someone special – it’s up to you. But first, you’ll need to determine what type of loan you need, the rates and terms available, and how much you can borrow.
The different types of loans
In Australia, there are two main types of personal loans: secured and unsecured. If you take out a secured loan, you’ll have to put up an asset (like your car) as guarantee. This means that if you don’t pay back the loan, the lender can reclaim the asset to make back the money.
On the other hand, taking out an unsecured loan means you don’t have to provide a security asset. But as this is riskier for lenders, these loans carry higher interest rates. To narrow down your choice, compare different loans and ask yourself the right questions.
Rates and terms
Naturally, the rate and term of your personal loan will depend on your circumstances. This includes:
- How much money you need
- How long you need to pay it off
- How you’ll make the repayments
- Whether you choose a fixed or variable rate.
Keep in mind that a fixed rate is set in stone from the start of your term, while a variable rate will move with changes to the market. There are pros and cons to each, so make sure you look into the features each lender offers. Use a personal loan calculator for a better idea of what you can afford.
How much can you borrow?
Depending on your financial institution
, the amount you borrow can vary. Your credit history, income details, and other financial commitments such as rent/mortgage and living expenses are all taken into account.
To find a figure you’re comfortable with, it’s important to be on top of all your incoming and outgoing finances. Not only will this help you budget for repayments
, it will also help you avoid borrowing more money than you can afford.
Applying for a loan
Found the loan you want? Now you can start your application. Most lenders will allow you to apply online
, over the phone or in person at a branch. Either way, you’ll need to meet the eligibility requirements, and provide your employment details and proof of income.
Most application processes are quick and straightforward, so you shouldn’t have to wait too long for an answer. Just keep in mind that if you’re a new customer, you’ll generally need to provide proof of ID before accessing funds.
Your next step
Now that you’ve wrapped your head around the basics, you’ll be in a better position to make the right choice. And if you ever need a hand, you can always chat to our friendly team