5 reasons you might need a personal loan this summer

By Polly Fleeting ·

2020 has been an odd one to say the least. Whether your travel plans have been cancelled, you’ve rearranged your wedding or home renovation, or your finances simply aren’t what they used to be, a personal loan might help you get back on track. 

It’s true, in some cases it’s more convenient to reach for your credit card to make purchases. But if you have a big expense coming up or find yourself needing to cover a large bill, a personal loan may actually be the better option. 

According to the Mozo database, the average interest rate on a secured personal loan sits at 8.01% and the average unsecured personal loan rate sits at 10.24%. Meanwhile the average credit card interest rate is 16.35%

So, if you think that your situation might be a good one to consider a personal loan, check out some of these examples below. 

1. Buying a car 

With international travel still out of the question and Aussie borders slowly opening up again, what a better time to take a summer roadtrip! 

While buying a car is a big expense and shouldn’t be done on the fly, a loan might help you get on the road toward owning a new set of wheels. 

At the moment the average new car loan rate in the Mozo database sits at 6.45%, while the average used car rate is a slightly higher 7.12%. These types of loans require you to put the car you are buying up as collateral against the loan - meaning the lender can repossess the car if you default on your loan. 

On the other hand, you could opt for an unsecured personal loan, especially if you are buying a used car older than five years. These loans are subject to higher rates, however you won’t have to put up any assets against the loan. 

2. Home renos 

If all this time working from home has inspired you to redo your living room or kitchen, then you may need a personal loan to get you over the line. 

Renovation loans come in all shapes and sizes with options to refinance, top up or set up a line of credit for some extra cash. 

When it comes to personal loans however, there are two you can choose from: a secured personal loan or an unsecured personal loan. Like with a car loan, a secured loan requires you to put up an asset against the loan, in return for a lower interest rate. This could be your home, car or even your savings. Alternatively, there is the option of an unsecured loan where no security is required. 

3. Your big day 

Got a summer wedding planned? If you have a few expenses that still need to be covered, a personal loan may be what you need. 

The benefit of a wedding loan is that if you are splitting it with your fiance, you may have two incomes to help pay it down (lightening the load on both sides). And like other personal loans, you’ll have the option of fixed or variable and secured or unsecured - it’s whatever suits you. 

It’s also important to remember that the shorter the loan the less you’ll pay in interest in the long run. So the golden rule here is don’t go overboard. Ask yourself, is a white carriage and doves really worth it if it’ll leave you in financial strife for months or years to come? 

4. Unexpected medical costs 

The truth is, the unexpected can happen. And in the current global environment medical costs may pop up. 

So what do you do if you are faced with a large medical bill out of the blue? You could apply for a medical loan to cover the costs.

While it might be tempting to slap the cost onto your credit card, a loan may provide a lower interest option on a bigger bill. Medical loans can cover a range of procedures from essential surgery and dental to even elective surgery. 

5. Consolidating your debt 

Have a pile of debt that doesn’t seem to be shrinking as fast as you would like? A debt consolidation loan may be the answer. 

If you have multiple debts across things like car loans, personal loans and even on your credit card, a debt consolidation loan could roll what you owe into one. By doing this, you receive a single (and usually lower) interest rate on your debt, meaning you only pay one repayment rather than multiple across the different products. 

One thing to remember is don’t roll your home loan into a debt consolidation loan. Mortgage terms are usually much longer (around 20-30 years), so this would end up stretching your existing debt out too long. 

Plus, if you only have credit card debt hanging over you, a balance transfer offer may be a better option. This way you can pay 0% in interest for a certain period of time and potentially pay down what you owe quicker. 

Want to start comparing personal loans today? Check out the killer options below or jump over to our personal loan comparison table for even more lenders.

Compare Personal Loans - last updated November 28, 2020

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Polly Fleeting
Money writer

Polly Fleeting is a personal finance writer here at Mozo, specialising in loans and credit cards. Her work is aimed at helping people find ways to make smart product choices, reduce debt and get more for their hard-earned dollars. Polly has a degree in Journalism from the University of Technology, Sydney.