Top personal loan myths busted
08 May 2018
A personal loan can be a handy and cost-effective way to achieve big milestones in your life, like buying your first car or renovating your home, not to mention extremely useful for consolidating existing debt or establishing a good credit history.
But not all personal loans are created equal and this handy financial tool is often misunderstood. So to put your mind at ease, Mozo Director Kirsty Lamont has put to bed four of the top myths around personal loans.
MYTH 1. Your bank is the best place to start
Approaching your current bank might seem like the easiest way to apply for a personal loan, but it doesn’t guarantee you the lowest interest rate. According to the Mozo database, personal loan rates range from under 10% to a whopping 17.57%. What are the chances that your bank offers the best deal?
“There is so much choice when it comes to applying for a personal loan, which is why it’s a great idea to start by using a personal loan comparison tool, so you can be confident that you’re aiming for the best value offer around. Plus, even if you do wind up back at your current bank, comparing interest rates first gives you some ammunition to start haggling for a better deal,” says Lamont.
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MYTH 2. Banks are the only trustworthy lenders
“The big banks would probably like you to believe this one! But the truth is, there are a wide variety of trustworthy lenders out there, and often the best interest rates are found outside traditional banks,” says Lamont.
In Australia, any credit provider - including banks, mutuals, credit unions, peer-to-peer lenders and online fintech platforms - must be registered and regulated by ASIC. Under these regulations, the lender must practice responsible lending, which includes ensuring the loan you apply for is suitable for you and your financial situation.
MYTH 3. Applying for a personal loan hurts your credit score
Simply putting in an application for a personal loan shouldn’t impact your credit history at all, since at that point, you don’t actually have access to any credit. In fact, applying for a personal loan and then meeting your repayments faithfully is one way to start building up a positive credit report.
One thing that can send up a red flag is applying for multiple personal loans all at once, which is why it’s a good idea to compare your options first and then only put in an application for your top choices.
MYTH 4. Personal loan interest rates are unfairly high
Nobody wants to get stuck paying a heap of interest - the good news is, there are heaps of personal loans on the market with really competitive interest rates.
This myth might spring from the fact that personal loan rates are 5.32% higher than home loan rates on average. This is because personal loans are repaid over a much shorter timeframe than a mortgage. But look at it this way - the average personal loan rate is 7.43% lower than your typical credit card rate!*
To score a great rate on your personal loan, all you need to do is know where to look. To get you started, you can check out some super competitive personal loans in our comparison table.
*Based on average rate for P&I $300,000 home loan over 30 years with 80 LVR(4.35%), and average rate for $30,000 personal loan over 5 years (9.67%) and average credit card rate of 17.10%.
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