Personal loans are likely to become increasingly popular in coming months as Australians look to consolidate debt, finance long-planned home projects while in shutdown or simply avail themselves of some extra cash in these economically tough times.
A low rate personal loan from a trusted bank or non-bank lender is a far better option than opting for a payday or fast cash loan, and personal loan rates are now more accessible than ever, but there are plenty of things that can go awry in the process of taking out a loan and paying it off.
So if you're considering a personal loan, read on for the Mozo expert guide to the top tips and traps of personal loans and check our comparison of low rate personal loans from bank and non-bank lenders in Australia.
Expert personal loan tips:
Look beyond the big banks to find the most competitive rates. Smaller online lenders have some of the lowest rates on the market, with rates starting from under 10% for borrowers with good credit.
Save on interest with fee-free extra repayments. Every extra cent you put into paying off your loan will reduce the interest you pay. Just watch out for fees, as some lenders will charge you for extra repayments.
Pay off lingering debt with a debt consolidation loan. If you've got multiple credit card or small loans and are getting lost in the paperwork and late repayment penalties, consider combining smaller debts into one lower rate debt consolidation loan.
Avoid these personal loan traps:
Steer clear of payday and fast cash loans. Payday loans might be quick and easy to organise, but in Australia the legal interest rate cap for these loans is an astounding 48% p.a. plus hefty upfront fees.
Choose the right fixed loan term up front to avoid break cost fees. Ensure you don't lose out savings made through early repayment by choosing your loan term carefully and finding a loan that will allow for extra repayments.
Check your consolidated loan timeline. You might have scored a lower interest rate to reduce your repayments, but if the loan term is stretched out much longer than the individual debts were, you could end up paying more interest over the life of the loan.