Don’t let these common misconceptions hold you back from choosing a personal loan

There is a common misconception that if you need to take out a personal loan to cover unexpected expenses or fund a purchase, you must be bad at saving and financial management.  But the reality is, personal loans are commonly used by Australians across various income levels and for all sorts of reasons.

Borrowing money to help fund a new car, dream holiday, or kitchen upgrade can be a smart way to achieve your goals sooner and spread the cost over time.  

Personal loans also offer flexibility which include features that give you power to choose a loan and repayment term that’s best for you. For instance, depending on the lender, loan terms start from as little as one year, repayments can be made to suit your pay cycle (weekly, fortnightly or monthly), and you can often pay out your loan early without paying hefty penalties or fees.   

But even with all these added benefits there are still some misconceptions floating around, so we felt it’s time we busted them! 

Myth: Personal loans have very high interest rates

Fact: Many lenders have moved away from the one-interest-rate-fits-all personal loan model towards more personalised interest rates.

They take into account your credit history, along with other criteria when determining your interest rate, and so if you've got a good to excellent credit history, it's likely that you could be approved for one of the lower interest rate bands available.

Personal loan rates are also generally cheaper than credit card rates, with the current average unsecured personal loan rate in our database at 9.81% p.a. (and the average secured multi-purpose loan sitting at 9.16% p.a.) compared with the average credit card interest rate of 17.66% p.a.

Myth: All personal loans require collateral

Fact: In addition to secured personal loans, many lenders also offer unsecured personal loans, which means you do not have to put up an asset such as a house or a car as collateral for the loan. Unsecured loans do however, often come with higher interest rates but they also usually allow extra repayments which can help you to save on interest payments. 

Myth: Personal loans are only for people with perfect credit. 

Fact: While a good credit score can help you secure a lower interest rate, many lenders offer personal loans to people with average or even low credit scores. Lenders also consider other factors, such as your income, employment history, and existing debt, when evaluating your application.