Five things to consider when comparing personal loans
If you’ve decided to apply for a personal loan, you may quickly feel overwhelmed by the range of choices on offer.
There are various types of personal loan (like secured loans and overdrafts), countless loan providers, and also different methods for distributing finance, from peer-to-peer loans to traditional bank loans. To help you make the right choice, it’s important to compare your options and you might want to consider the following five questions to find what’s right for you.
What is the interest rate and how competitive is it?
The interest rate on your loan will help to determine how much you are responsible for paying back to the loan provider. When comparing interest rates, it’s important that you take into account the loan term. For example, while the monthly payments on a long term loan may be less, you could end up paying more interest overall. You can use a comparison website like Canstar to make sure that you’ve been offered a competitive interest rate.
What are the fees and charges?
Depending on the finance provider, your personal loans may come with a range of fees, such as an establishment fee, maintenance fees, and late payment fees. You should always inquire about the specific loan product and pay special attention to any fees and charges that you might incur. This will allow you to arrive at a full understanding of how much the loan might ultimately cost.
What are the terms and conditions?
Your loan contract will include its terms and conditions. You should consider these carefully. For example, some finance providers may penalise or even prohibit early repayments. Others may have a higher interest rate that comes into effect if your loan is not paid off in full during the loan period.
What can you afford to borrow?
Remember that you are completely accountable for your loan: this means that you must be prepared to make all repayments on time lest you incur severe penalties. These may include late payment fees, adverse effects on your credit score, and even the referral of your account to a debt collection agency. With this in mind, it’s important to be sensible about the size of your personal loan. You can use ASIC’s personal loan calculator to work out a manageable loan amount based on how much you can afford to repay each month.
Does the lender have a good reputation?
Before committing to a personal loan, consider the loan provider’s reputation: are they trustworthy? Do they offer responsive customer service? Are they known for being flexible if borrowers wish to make additional or early repayments? To answer these questions, a great place to start is with online services like Canstar and ProductReview.com.au that allow you to see what industry experts and previous customers say about individual loan providers.
This information does not constitute financial advice and you should consider whether it is appropriate to your circumstances before you act in reliance on it. Any opinions, forecasts or recommendations reflect the judgement and assumptions of RateSetter as at the date of publication and may later change without notice.