10 Tips to secure the best personal loan for your needs
You can obtain a personal loan ranging from $1,000 to $75,000 with a tailored interest rate that matches your personal credit history from a selection of banks, peer-to-peer lenders and alternative credit providers.
These 10 tips will help you secure the best personal loan for your needs, quickly and easily while ensuring you get what you want and stay within your budget.
#1) Do you have good or bad credit?
Knowing whether you have good or bad credit is crucial in ensuring that you make use of the appropriate lender. Applying to a bank or lender that requires good credit when you have a bad credit score will not only cause your loan application to be declined and further lower your credit score.
To find out whether you have good or bad credit you simply need to request a free copy of your credit report from one of the three major credit reporting agencies in Australia. The three credit reporting agencies in Australia are Experian, Equifax and Illion and each offer Australian’s a copy of their credit report, for free, once per annum.
#2) Be clear on how much you need
How much you need will depend on the purpose of the loan. You should carefully consider this figure and ensure you do not take out more than you really need. Even if you can qualify for a higher loan amount and have great credit, avoid settling for a higher loan amount.
Debt is expensive and your money can certainly be put to better use than paying interest for a loan you really didn’t need. As mentioned, personal loans in Australia typically range from $1,000 to $75,000.
#3) Work out how much you can afford to borrow
How much you need and how much you can afford are not always the same which is why using a loan calculator is crucial. This will help you adjust your loan amount and/or loan term and settle on the figure that is best based on affordability.
Your loan repayments should easily fit into your current budget without causing any strain on your day-to-day living. You should also avoid borrowing to cover existing debts or financial commitments unless you are specifically looking to obtain a loan for the purposes of debt consolidation.
#4) Find a lender that suits your needs
Now that you know what your credit rating is and have defined how much you want to borrow and what you can afford to repay weekly, fortnightly or monthly, it’s time to find a lender that will meet your needs. A great way to find suitable lenders is by making use of a loan comparison site that will allow you to input your loan needs.
Loan comparison and review sites such as Canstar and Finder can help you find a suitable loan and lender quickly and easily and can help you isolate lenders that offer features that are specifically important to you. This could be anything from loan amount to penalty-free early loan settlement policies.
#5) The longer the loan term the lower your instalments
When it comes to ensuring affordability, if you need a larger loan amount but have a small budget, the only way to make it work is to opt for a longer loan term. Since you’ll be making more instalments over the course of the loan term your regular instalments will be smaller and therefore more affordable.
Be aware that extending a loan term may very well lower your instalment but it will make your loan more costly overall. This is because you will be charged interest on the balance for a longer period of time. That being said, always choose to opt for a repayment figure that you can truly afford to avoid strain and possible default later on.
#6) Compare more than just interest rates
Many people are drawn in by adverts highlighting low interest rates. While the interest rate you receive on a personal loan is very important, if you do not consider all the fees and costs involved you may just end up with an expensive option.
The fees that you need to compare include initiation fees and administration or ongoing service fees which lenders tend to charge on all loans.
In addition, be aware that the advertised interest rate is very rarely the interest rate that you will receive unless you have an excellent credit score.
Rather make use of the “comparison rate” of a loan offer or what is known as the APR or Annual Percentage Rate to compare loans as these add not only the interest but also any fees you will pay.
#7) Consider alternatives to traditional lenders
While getting a loan from a bank may be what you’re used to doing, considering alternative lenders and options such as online lenders or peer-to-peer loans may help you secure the best deal on the market.
Peer-to-peer lenders deliver loans completely online, have low overhead costs and can therefore offer you some of the most competitive rates in the country.
If you have poor credit, it may be in your best interest to apply for a loan from a bad credit lender to ensure approval. When comparing lenders and loans make sure that you include a few alternative lenders too!
#8) Do not make multiple loan applications
Making multiple loan applications is a mistake that many Aussies make without even knowing that it affects their credit. Every time you apply for a loan, a lender will perform a credit check and this will remain on your credit file for a significant period of time and lower your credit score.
Instead of making multiple loan applications and wasting valuable time, compare loans on a loan comparison site or make use of a broker. If you have bad credit, this step is particularly important as banks and traditional lenders may very decline your application based on the mere fact that your credit is below their required minimum.
#9) Make use of a broker to secure the best personal loan for your needs
Brokers have a bad reputation and many people think that using one means you have to pay them for their services however, this isn’t the case. Brokers can help you find a loan that meets your needs as they have access to a wide panel of lenders and know the industry better than anyone.
If you have special loan needs or are looking for unusual loan terms, a broker is likely to be the best person to help you get what you want. In addition, if you end up taking out a loan through the broker, the lender is the one that pays them which means the service is free to you.
#10) Before applying check out customer reviews to weed out any possible issues
While using a loan comparison site may guide you to some of Australia’s leading loans and lenders, there may be more than meets the eye and running a quick check to see what other’s are saying about a particular lender or loan may be worth the effort.
Customers may just draw your attention to a feature or limitation of their loan that they missed and regretted later. Read a few reviews and make sure you’re making the right choice before you apply!