Online personal loans and lenders

That depends on you and your financial situation. With a fixed interest rate, you will know exactly what your repayments will be for the full term of the loan. People often choose fixed rate loans because it helps them to budget better. The risk with a variable rate loan is that the interest rate could change over the loan period. This is a double-edged sword because if rates go down so do your repayments but if the opposite happens, your repayments will also go up. Variable rate loans usually also have more flexibility than fixed rate loans.

No, the comparison rate of a loan is a rate which combines both the standard interest rate and fees of a loan so that you can compare the true cost of that loan. Your comparison rate might be different to the comparison interest rate that is listed on Mozo because the comparison rate you see on Mozo is only an example rate based on a set loan amount over a set time. You will be given a personalised comparison rate by the lender which will be based on your specific loan amount over the loan term you specify.

Each lender will have a minimum loan amount that you'll be able to borrow and some loans will also be capped at a maximum level. Personal loans generally range from $1,000 to over $75,000 and have loan terms between 1 - 10 years.

The important thing to understand is that the amount that you will be able to borrow will depend on your personal financial situation and, if you are making a joint application, that of your loan partner.

Before randomly selecting a loan amount and hoping for the best, you should do some serious number crunching to work out the best loan term for your budget and the maximum you think you'll be able to borrow without putting stress on yourself. At Mozo we've developed a repayments calculator so you can play around with different loan terms and amounts to find your best option before applying.

As many personal loans come with the flexibility to make extra repayments, it's a good idea to select a loan term that you can comfortably meet, rather than opting for a really aggressive payback period. Because so many loans allow you to make extra repayments whenever you like you, you top up your loan when you have extra cash so that you reduce the loan term without the stress!

Like traditional personal loans, the types of fees that you'll have to pay will vary between lenders. The main types of loan fees are:

• Upfront fees. This is usually something like an application fee that you'll pay upfront once the loan is approved.
• Ongoing or account keeping fees. Depending on the loan term, you might be required to pay a monthly fee or an annual fee. This is one of those fees that you've got to pay attention to because it might only seem like a small amount, but over the term of your loan this amount can add up. This is why the comparison rate is helpful and allows you to make sure you are comparing loan apples with loan apples.
• Discharge fees. At the end of the loan, you could be up for a fee when your lender discharges the loan.
• Break cost fees. Sometimes if you pay out a fixed rate loan early you will need to pay a break cost fee. The amount will be determined by the bank and based on the amount of time left on the loan and the interest rate. You don't need to pay this on variable rate loans.

In addition to banks, credit unions and mutual banks, for personal loans you can borrow money online from non-bank lenders like peer-to-peer lenders. These lenders usually have different lending criteria to a bank, and often, cheaper rates if you've got a good credit history, so if you are considering getting an unsecured loan you can check out their loans.

With peer-to-peer platforms you'll do everything online from applying for the loan and managing your repayments. If you'd like to learn more about online lenders, you can read our guide Peer-to-peer lenders in Australia explained.

We are in the process of moving towards a comprehensive reporting system in Australia. This means that lenders and other businesses will soon be taking into account your whole credit history when determining whether to lend you money. Previously, banks only knew if you had missed a repayment or defaulted on a loan. With comprehensive credit reporting they will be able to get a sense of your whole financial picture such as how much of your credit limit you have available, when you paid your bills, did you pay the whole amount or only some of it. The upside to this is that by giving the banks a comprehensive view, they will be able to reward people who demonstrate good savings and financial behaviour - that's the theory anyway! Lenders can see that you will be able to pay back any money borrowed, in the timeframe that you said you would and in return they might offer you a better interest rate.

So what this means is that if you are thinking about getting a personal loan in the lead up to making an application you need to be much more prepared, making sure your bills are paid on time, you're showing that you are saving, and you are comfortably meeting other financial commitments like mortgage repayments or rent.

You can get a copy of your credit report for free so it is a good idea to do this prior to applying for a loan so that you can check it for any errors or, if you have a low score, know the areas that you will need to improve before applying online for a bank loan.

Every bank and online lender will have their own criteria for determining loan approvals so there is no way of guaranteeing that you will be approved for any loan. But you can make sure that you've got the highest chance possible and this means:

• Setting a realistic budget. It can be easy to get carried away at the car sales room looking at top of the range models, but before setting foot in the showroom you need to know how much you can realistically afford to borrow. Check out Mozo's repayment calculator to see how much you will be able to borrow on your budget.
• Having savings. This is all about showing the lender that you will be ok with the responsibility of repaying a loan. It is a good idea to work out how much your loan repayment will be and then start putting this away each month into a savings account. This way, not only will the bank know that you'll be able to meet the repayments, but you will also feel more confident that you can comfortably make the commitment.
• Stay on top of your bills. Don't give lenders any excuse to knock you back. Keep your credit file in the best health possible by staying on top of bills and other financial expenses.

With an online loan application, you'll need to supply the same information to the lender as you would have, had you walked into a branch. The good news is that most online loan applications are very easy and walk you through a step by step process.

Standard information you'll need for most loan applications includes:

• personal information and identification details - for example drivers licence number, passport details and utility bills in your name that show your current address.
• Proof of income (recent payslips or tax return)
• List of assets and liabilities
• Proof of employment
• Loan amount and loan term requested

Depending on the loan provider the process for loan approval could be instant, or as little as a few hours or a few days. The lender will provide information at the time of application which will advise you of the process.

Getting a personal loan can help you to buy something now, and pay for it over time, but you don't want to fall into the trap of accumulating debt and getting into financial stress. Here are some of Mozo's top tips for using a personal loan wisely

• Don't: borrow more than you need. Your bank may approve a loan for $30K but that doesn't mean that you should spend to this limit. It can be pretty hard to stop spending once that money is in your bank account, so be strict with yourself and only borrow the minimum amount you need.
• Do: make extra repayments whenever possible. You will be paying interest on the money loaned every day so whenever you have extra cash available put it into your loan. Most lenders allow you to make extra repayments free of charge so use this to your advantage.
• Don't: spend the money on other things. Budgeted $15,000 on a kitchen upgrade but only ended up spending $12,000 of it? As tempting as it would be to keep that extra $3,000 and put towards a holiday, don't. Put the money straight back into the loan by making a lump sum repayment. If the loan you choose has a redraw facility you will be able to use this money later on down the track, but don't pay interest on money you don't need.
• Do: shop around. You've got a lot of choice when it comes choosing an online lender so don't fall into the trap of just going with your existing provider without comparing their rates with other lenders. Every percentage point difference is money out of your pocket, so the lower your interest rate the cheaper your repayments.
• Don't: miss a repayment. It can be hard keeping track of repayment dates but that isn't an excuse for missing a repayment. The great thing about online banking, direct debit and payment notifications means that you don't have to keep track anymore. Organise a direct debit or get an alert when your payment is due. Not only will you avoid paying a late fee this way but you'll also keep you credit file squeaky clean.