Savvy borrowers thinking about using current low interest rates to shop for a new loan or refinance old debts will need to do their homework to find the best personal loan deals.
Australia’s official cash rate target may be down to 2 per cent but rates on personal loans range from under 6 per cent, up to a hefty 18 per cent.
But personal loans are often a cheaper option than many credit cards, so how do you make sure you find the best personal loan for your needs?
1. What’s your reason for borrowing?
Loans advertised specifically for the purpose of debt consolidation (rolling all your existing cards and lines of credit into one straightforward agreement and repayment schedule) usually have a higher interest rate.
Rates can be fixed or variable on consolidation loans but they are more likely to require that you provide security. They may also have an application fee and even an ongoing fee.
You can get a cheaper loan if you have a specific purpose for borrowing such as to purchase a car or to pay for home furnishings.
2. Fixed or variable rate?
Personal loans in Australia traditionally came with a fixed interest rate and repayment term. Their attraction was that you knew exactly what your repayment schedule would be for the life of the loan. Now fixed and variable rate personal loans are available from most lenders and the decision is really up to you and your personal circumstances. A fixed rate loan will give you the peace of mind to be able to budget for the long-term whereas as variable loan might go down if there is a rate cut, but this is by no means guaranteed, and you have to be prepared for the fact it could also go up.
3. Secured or unsecured?
It is possible to find an unsecured loan with a reasonably competitive interest rate, although the cheapest loans are currently secured. That means you need to provide an asset (such as a car) as security against the amount you are borrowing. The lenders decision to approve an unsecured loan will depend on the amount you are borrowing, your credit history and ability to repay.
4. What other features should you consider?
Don’t overlook fees, including the application fee and any ongoing charges. Also check penalties for missed repayments. Make sure you are able to make extra payments but also check if a penalty applies for early repayment of the loan (particularly if it has a fixed interest rate).
If you are concerned about job security it may be worth looking for a loan that allows you to defer repayments.
To find the lowest rates online, compare personal loans at RateCity today.