Things to Consider Before Getting a Personal Loan in Australia
Friday, March 17, 2023
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Generally, a personal loan is a form of credit provided by a lender to a borrower. As its name suggests, you can use this type of loan for personal expenses. But, unlike other kinds of credit, such as mortgages and credit cards, personal loans are not open-ended and should be settled within a specified period.
In Australia, you can obtain a personal loan by applying for one through a lender. Although the entire process and basic requirements will vary depending on the type of lender that will issue the loan, the application process typically involves submitting documents proving that you are of age and a permanent resident or citizen of Australia. You will also have to meet requirements regarding your income level and credit score.
Personal Loan Lenders
Below are the different types of lenders where you can apply for a personal loan.
Banks
Banks are the most well-known source of personal loans. Since these financial institutions tend to have strict qualification requirements when issuing loans, only clients with high credit scores and those who are earning at certain income levels are able to successfully apply for personal loans.
But, there are also some banks that are more lenient when it comes to issuing loans. They also offer more flexible repayment options than other traditional banks.
Credit Unions
A credit union is a member-owned financial cooperative that’s operated by members and shares profits with its owners. Unlike most banks, which are generally for-profit lenders, credit unions have less rigid loan requirements for their members or account holders. They also offer relatively lower rates.
Of course, you’ll only be able to avail of the services of a credit union if you’re a member or an account holder. This can be easily done by finding a credit union or one of its branches near you and following the necessary steps to becoming a member.
Online Lenders
As their name suggests, online personal loan lenders enable you to complete the entire process of applying for a loan without stepping inside a bank. These businesses tend to offer more competitive rates and lenient credit requirements than traditional financial institutions.
They’re also ideal for those with low credit scores since many online lenders tend to focus on other factors to determine your payment capabilities, such as your banking activity or job history.
Peer-to-Peer Lenders
Through peer-to-peer lenders, you can apply for loans that are backed by corporate or individual investors. Like online lenders, a peer-to-peer lender is a great option for borrowers with limited credit history as long as they can show that they have the ability to pay for their loans.
Some of the factors that peer-to-peer lenders evaluate when processing loan applications include the borrower’s educational background, work history, and bill payment history.
Personal Loan Types
During the application process, you’ll most likely come across certain terms that refer to the type of loan that you can get. Knowing these terms can provide you with a comprehensive understanding of which type of personal loan you should get depending on various factors, such as your needs, financial background, and capacity to repay.
Variable Vs. Fixed-Rate
When you’re applying for a loan, you’ll most likely encounter the terms “variable” and “fixed” rates. Loans with variable interest rates mean that your repayments will change if the interest rates increase or decrease. This means that when the interest rates rise, your repayments will be higher.
On the other hand, the repayments in a loan with a fixed interest rate will not change. One of the main advantages of this type of loan is that you will always know how much you will be charged by your bank each month.
Unsecured Vs. Secured
Secured loans usually require a security asset. Cars are commonly used as assets for this type of loan. If the borrower fails to repay a loan within an agreed period, the lender can acquire the asset and sell it.
Since unsecured loans don’t have an attached security asset, guarantors are usually required. Lenders may take legal action against borrowers who fail to settle their loan repayments.
Debt Consolidation Loan
Also known as refinancing, debt consolidation loans commonly involve rolling numerous debts into a single loan. Although this can provide an easy and more practical way to manage repayments, there’s a chance that borrowers might end up with higher fees and interest rates.
Loan With A Guarantor
In this type of loan, the guarantor can be a close friend or a family member of the borrower. The main role of the guarantor is to handle the loan’s repayments in case the borrower fails to settle them. Since this approach reduces the risk for the lenders, loans with guarantors can usually come with lower interest rates.
Just make sure that your chosen guarantor knows what they’re getting into and is aware of the loan’s various terms before you apply for this type of loan.
Personal Loan Uses
Once your personal loan application has been approved, you’re free to use it for various legal reasons. Below are some of the ways you can use your personal loan.
Buying A New Car
Although auto loans exist specifically for vehicle purchases, many people tend to prefer to use a personal loan to buy their dream car. That’s because personal loans usually don’t require collateral or down payment from borrowers.
Also, there are loan options that have flexible repayment terms, which can allow you to be in control of your finances as you pay off the loan that you used to buy your new car.
Making Home Renovations
Renovating a home is another common reason why people apply for a loan. This type of project can get costly, especially if it involves major renovations and repairs. With a personal loan, you can cover a huge chunk of the project’s cost while making a significant improvement to your home lifestyle.
Funding A Vacation
A personal loan can also help you fund an overseas trip with your family or friends. Using a loan for a vacation is ideal since it will allow you to finally go on the trip you’ve been dreaming about without spending a huge amount of your money in one go. Being able to repay the loan you used for your vacation over the course of several months can help you avoid draining your savings.
Paying For Medical Bills
Medical emergencies often occur unexpectedly, which means there’s a chance that you’re not financially ready to address them. Fortunately, you can use a personal loan to settle medical expenses. This can help prevent medical expenses from piling up and putting a significant dent in your savings.
Other Personal Expenses
As mentioned earlier, you can use a personal loan for your various personal expenses. Some of these include debt consolidation, expensive car repairs, wedding costs, and business investments. Just make sure to check with the lender on how you can use your personal loan to avoid potential issues.
Things To Remember About Personal Loans
By applying for a personal loan, you’ll be able to cover major expenses without putting too much strain on your finances. One of its main advantages is it allows you to effectively manage your finances by spreading the cost of a significant purchase.
But, always keep in mind that personal loans, like other types of credit, require a long-term commitment. You’ll only be able to make the most of the various benefits of a loan as long as you have the ability to settle or repay within the agreed period. Otherwise, you could end up having serious financial issues in the future.
One way to avoid this is by choosing a personal loan option that offers flexible terms that are well-suited to your needs and financial background. For instance, BankWAW offers both secured and unsecured loan options.
With a secured loan, you’ll be able to enjoy lower interest rates since an asset will be used as collateral. This provides you with better flexibility when it comes to managing your finances and paying off your loan.
In addition, BankWAW offers various types of loans that you can use for different purposes. Aside from the standard personal loan, we also offer a car loan, which can be used to purchase new or used vehicles that are up to 7 years old. You can pay off your loan in 7 years for brand-new cars and 5 years for used ones.
Another type of loan that you can get from BankWAW is a solar loan. This option is perfect for borrowers who are looking to pursue a sustainable and environmentally-friendly lifestyle by upgrading their home’s energy system. It provides them with the financial resources to purchase green energy units such as solar panels, energy-efficient lighting, and solar hot water systems.
The property package loan is another flexible option that you can get from BankWAW. If you’re a homeowner, this loan package can provide you with additional funds, which you can then use for various purposes, such as an overseas vacation, a new car purchase, or for a home renovation project.
We also offer a personal overdraft or personal line of credit. This option helps you cover unexpected expenses that can occur when you're travelling or relocating to a new home. You can also use it to handle everyday living costs. BankWAW’s personal overdraft also has lower interest rates for secured facilities.
These are just some of the types of loans that we offer. As a community-owned bank, we are committed to helping our members and clients achieve financial growth and freedom through our wide variety of banking services.