So how do you know what is the right personal loan for you?
There’s no one-size-fits-all answer to this because the right option for you may not be the right option for someone else - it depends on the features you want as well as why you’re taking out a personal loan in the first place.
With that in mind, there are some general things to look out for when choosing a personal loan.
In the market for a personal loan? The table below features personal loans with some of the lowest interest rates on the market.
Lender | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fixed | Unsecured | N/A | More details | ||||||||||
| FEATUREDLoan amounts from $2k to $75k | Low Rate Personal Loan Unsecured (Excellent Credit)
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Low Rate Personal Loan Unsecured (Excellent Credit)
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| Fixed | Unsecured | N/A | N/A | More details | |||||||||
Unsecured Personal Loan (Excellent Credit) | |||||||||||||
| Fixed | Unsecured | N/A | N/A | More details | |||||||||
| NO ONGOING FEESAPPLY ONLINE | |||||||||||||
Unsecured Personal Loan (Excellent Credit) | |||||||||||||
| Variable | Unsecured | N/A | N/A | More details | |||||||||
Personal Loan | |||||||||||||
- Interest rates start at 14.95% and could be as high as 27.95% based on your personal circumstances and loan term
- Australian residents and citizens only
- Personal Loans from $3,000 to $25,000, with loan terms ranging from 25 - 48 months
- Terms, Conditions and Lending Criteria apply
What to look for in a personal loan
1. A competitive interest rate
A competitive interest rate can make a world of difference to the cost of your loan over the loan term. You could potentially save thousands in interest by choosing a low interest rate. How high (or low) your interest rate will be may depend on a few factors, such as your risk as a borrower and whether you take out a secured or unsecured personal loan.
A secured personal loan is where you use an asset (like a car) to be used as security against the loan in case you default on your repayments. If you default on the loan, the lender can seize the asset to recoup the costs. Because of this, interest rates on secured personal loans are often lower than rates on unsecured personal loans because there’s less risk for the lender.
Unsecured personal loan
An unsecured personal loan allows you to borrow money without being required to put an asset up as security against the loan. This means that there’s no asset for the lender to seize if you default on the debt, making this type of loan riskier for the lender. As a result, interest rates for unsecured personal loans are typically higher than they are for secured personal loans.
2. Repayment flexibility
On top of a competitive interest rate, you should also look for a personal loan that will allow you to make extra repayments without being financially penalised for doing so. Some personal loans, mostly fixed ones, with charge you a fee if you make extra repayments or repay the loan early. Because you want to pay off your debt as fast as possible, it’s important to look for a personal loan with the ability to make extra repayments as well as the ability to make more frequent repayments (such as weekly or fortnightly).
3. Minimal fees
Most personal loans will charge you fees such as application and ongoing fees - the key is to look for a loan that will charge you as few fees as possible.
Personal loan fees to try and avoid include early repayment fees and break/early exit fees. These fees are most common with fixed-rate personal loans.
When you’re comparing personal loans, don’t forget to look at the comparison rate as this should give you a better indication of what the true cost of the loan is, because the comparison rate factors in some of the loan’s fees.
See also: What fees do personal loans charge?
4. A short loan term
Stretching out your loan repayments over a longer loan term means your monthly repayments will be smaller, but you actually end up paying more in interest over the life of the loan - so you’re not really saving any money.
A short loan term is ideal, because even though it may mean your repayments are bigger, you can pay it off quicker and save money in the long run by not accruing extra interest. This is why you should carefully weigh up the benefits of a lower monthly repayment against a higher cost loan cost - is it worth having that extra cash flow each month even if it means you end up paying more in interest over the life of the loan? Or can you deal with a bigger monthly repayment knowing that it’s only for a short period of time and that you’ll be saving interest?
5. Manageable repayments
That last point leads into this one, because you want to make sure those monthly repayments comfortably fit into your budget and that you won’t be struggling to make your repayments. If you do miss a repayment, you risk damaging your credit score which could make it harder for you to take out future loans. Before taking out a personal loan, make sure you’re not taking out a debt that’s so big you can’t reasonably afford to repay it. You may even have to ask yourself whether or not you should be taking out a personal loan in the first place, especially if it’s for a discretionary purchase like travel, that you don’t really need to take out a personal loan for.
Savings.com.au’s two cents
Don’t just take out the very first personal loan you see. Do your research and compare your options to find the best personal loan that suits your needs.
Don’t forget to read the terms and conditions and the Product Disclosure Statement (PDS) for a full list of fees so you’re completely aware of what you’re signing up for.
Mary Eineman on Unsplash
Brooke Cooper
