Best Personal Loans

What are personal loans?

When you need to borrow some money upfront for a big purchase or to fund an event/vacation, you can apply for a personal loan which will need to be paid back with interest over an agreed timeframe. There are many reasons why you might want to consider taking a personal loan including but not limited to:

• Weddings and special events
• Refurbishing your home
• Home renovations
• Buying a car
• Travelling or a holiday
• Debt consolidation

Personal loans can be granted or denied depending on your credit score and can affect your credit score positively or negatively depending on if you miss any payments. Loans can range from $300 to $100,000 and the loan terms from 3 months to 7 years. Loans on the higher end of that range typically require a secure loan to be taken.

Personal loans vs. credit cards

Personal loans give you a lump sum of money right off the bat which you can pay back over a longer period of time. Credit cards allow you to borrow up to your credit card’s limit (this varies depending on your provider - but normally, it’s up to $10,000). The amount you borrow must be paid back relatively quicker than a personal loan by your credit card company’s due date, otherwise, you will face a heavy interest rate.

On top of higher interest rates, your credit card may come with an annual fee. A benefit of using credit cards is that they offer lucrative deals including cashback, travel points and exclusive offers for taking and paying off loans on time.

Personal loans can rack up expenses on top of the interest as many have a monthly fee and a one-off establishment fee.

While they are both good short-term options for loans - credit cards work as a type of revolving credit which may be more suitable for those with good control over budgeting. It can be useful for those who do not get paid at consistent times and need a short loan until they get paid.

For large one-off purchases, a personal loan will be a more cost-effective solution in the long run.

Personal loans

Credit cards

At the end of the day, they are both loans with legal contracts and mistreating them as such can lead to a bad credit score which can deny you housing, jobs and further access to loans.

Types of personal loans

Secured personal loan

Secured loans involve you offering a financial asset to the loaning company or bank to act as a deposit should you fail to repay the loan. This is called a collateral and can be in the form of your car, savings account, bonds, stocks or a house. This ensures to your bank that the loan will be paid back (otherwise, they can seize the collateral) and incentivises the borrower to pay back the loan on schedule.

Taking out a secure loan can lead to lower interest rates and many large loans will only be given out as a secured personal loan.

Unsecured personal loan

These types of loans do not require you to use a financial asset as collateral, however, the loan amount tends to be smaller and the interest rate, higher. If you are unable to repay your loans, as with any legal contract, you may be taken to court and sued.

Unsecured personal loans require less paperwork and can be granted online in a matter of hours if you need the loan very quickly.

Fixed vs. variable interest rates

Fixed interest rate

Fixed interest rates will involve your interest rate staying the same throughout your repayment term. This can give you peace of mind that despite the economy fluctuating, you know exactly how much you will have to repay. Fixed interest rates are usually

Variable interest rate

Variable interest rates can be a risky option as rates can rise - however, they can also decrease and you can end up paying less than you would have if you had taken out a fixed interest rate. They also come with lower interest rates than the fixed option and most offer the opportunity to make extra repayments at no cost - giving you the ability to cut down the length of your loan.

A recent option for those who can’t decide between the two is a split loan - this means half of your loan will be fixed and the other half will be variable.

What to look for in a personal loan

Aside from interest rates, there are a few other things to look out for.

**Loan guarantor: **If you can find someone to act as your guarantor - meaning that if you miss a payment, they will be legally required to pay for you, then this can help reduce your interest rate.

**Fees & charges: **You may be paying more than you should through application fees, monthly fees, missed payment fees, early repayment fees and extra repayment fees. Have a thorough understanding of the terms and conditions before signing onto a loan.

Loan term: For personal loans, the loan repayment period usually ranges from 1-7 years. The longer your term, the smaller each monthly payment needs to be, however, you will end up paying more in interest longer-term. Consider your financial situation when deciding which loan term is the best for you.

Extra repayments: If you want the opportunity to repay your loan sooner, make sure you choose a loan with that flexibility, otherwise you may have to pay an additional fee to make up for the cost in the lost interest.

Redraw availability: If you make many extra repayments but find yourself needing the money again, some banks offer the opportunity for you to redraw the money from your extra re-payments.

**Comparison rate: **Many websites display a comparison rate that encompasses the entire cost of the loan including interest, loan amount, term and fees. This will allow you to easily compare it against other companies to get the best price.

**Co-loan: **You have the opportunity to get a joint personal loan for large amounts - usually with someone close to you (a spouse or family member). You will both be legally responsible for paying off the loan in full, even if the other person is not pulling their weight, therefore this is not a decision to take lightly.

**Repayment frequency: **Usually, you will be asked to make a monthly payment - however, some can be weekly or fortnightly. Choose a repayment schedule that works best for you to avoid missing payments.

**Loan use: While there are many multipurpose loans, **some loans are specific to purchasing homes, cars or for studying, etc. Make sure the loan you apply for is suitable for your situation.

Online loan vs in-person bank loan

Nowadays, you can visit a loan officer at your bank or go with the more modern option of an online lender that can get you a loan in a few hours should you qualify.

Financial technology companies that offer personal loans online are encroaching on traditional banks in the lending business. Fintechs originated almost half (49.4%) of unsecured loans in March of 2019 according to a study by the credit bureau, Experian.

For those looking for a quick loan, online is the way to go - with many businesses promising same day or next day service. Many websites also offer an online loan calculator to help guide your decision.

Online loan

In-person banks have been standing longer and therefore have a bigger reputation and more reviews for you to scroll through. Something you don’t have to worry about is falling victim to money-grabbing schemes at a bank as opposed to an unreviewed online loan company. You can talk through your options with a representative who can tailor advice specifically to you. However, unlike online fintech companies, bank branches have specific opening and closing times which may not be suitable for those working full time and can’t get into a branch.

In-person bank loan

Other factors to consider

Transparency

It’s important to choose a bank that’s open and upfront about the fees & costs involved as well as anything else that is important to know. There is nothing worse than feeling bamboozled by surprise fees and conditions that were not made clear to begin with.

Customer service

Since you’ll be making repayments from anywhere between a few months to multiple years, you’ll want to do your research on their customer service before committing to a company. Should you face problems or want to ask questions during that time, you’ll want to know you can contact them promptly and talk through things with a helpful and friendly team.

Application Process

The smoother the application process, the more the company emphasises your customer experience. Companies with an extensive or complicated application process can be tedious and time-consuming.

Timeliness

Usually, when you’re applying for a personal loan, it’s because you want to purchase something soon and don’t have a lot of time to waste. Reading reviews to see how others rate the company on timeliness is important since you don’t want to be waiting months for a loan approval or hours on the phone trying to access a representative.

Loan Term

Different banks and fintech companies offer different loan terms. Consider which term is the best for you and choose a company that can accommodate this whether you prefer to pay off your loan sooner or later.

You can read reviews on our website ranking the best personal loan companies on the market today!

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