Bank Personal loans

Most banks will have a range of loan options for personal lending. Here is the main types of personal loans.

• Secured - Own a house or car? Then you've unintentionally bought yourself some more borrowing power with the banks and potentially a better rate with lower fees! But there is a catch to this - with a secured loan you willing must use those assets as security for the loan. As this is a risky move, it's important to calculate your potential repayments to ensure that you'll be able to repay the loan.
• Unsecured - On the other hand, an unsecured loan does not require any security. But it does mean you'll generally have to pass on the most competitive interest rate. You'll still need to stay on top of your repayments, as your provider will still hold you accountable.
• Debt consolidation - A debt consolidation loan can works by combining debt from different sources (credit card, car loan, store card) into a single, low rate loan - saving you on multiple fees, but more importantly, paying multiple bills.

When it comes to personal loans, you'll typically have two options. Ultimately, the type of rate you choose will depend on your circumstances, but it's always a good idea to weigh up your options:

Fixed interest rate - A fixed interest rate will lock in the rate over the course of your loan. This means that your rate will not change regardless of the market's fluctuation, leaving you to budget more effectively.

Variable interest rate - A variable interest rate will change over time, depending on fluctuations in the market.

When you compare or apply for a personal loan you will also notice a rate called a Comparison rate. This rate is important and should be the rate you use to compare your choices as it shows you the true cost of the loan as it takes into account a number of factors including ongoing fees, other charges and the provider's interest rate.

Of course, the key feature of any personal loan is the interest rate as this will determine just how much money you'll have to pay the bank to lend you the money but it's also a good idea to watch out for the following when comparing bank personal loans:

• Flexible repayment options - Give yourself some breathing room with a flexible repayment schedule. For instance, if you choose to repay $600 on a monthly basis, over 12 months, you'll have repaid $7,200. But if you opted for the $300 fortnightly repayment, you'll have repaid $7,800 - an extra $500 on your loan!
• Extra repayment facility - Because you never know when you'll suddenly fall into some money. Having the option to make extra, lump sum payments will help you reduce the length of your loan. Keep in mind though, fixed rate loans will often not allow extra repayments or, will have a limit on the number of times you can do this throughout the year.
• Redraw facility - Speaking of those extra repayments, wouldn't it be great if you could take it back whenever you needed it? That's where a redraw facility come in - allowing you redraw any extra repayments you've made over the course of your loan. However, it does mean that you will be extending the lifespan of your loan.

Now let's get to the bit that no one enjoys, fees. Here are some common fees you could be paying if you decide to take out a bank personal loan:

• Upfront fee - This is the fee you could be expected to pay once you apply for a personal loan and can be anywhere between $0 - $600. If the loan you're applying for has a hefty upfront free, ensure that you're making up for it with a competitive interest rate and handy loan features.
• Ongoing fees - Many banks will also charge ongoing fees, such as monthly fees. While these may appear as minor, they can add up over time.
• Late payment fee - While this isn't a compulsory fee, it's important to keep in mind. Late payment fees are usually around $30 and are not based on your loan amount. One way to avoid paying late payment fees is setting up automatic payments through your online banking account. This way, you won't ever need to remind yourself about making a repayment.
• Break cost fee - A break cost fee is a fee charged sometimes when you pay out a fixed rate loan early. While exit fees were banned on variable rate loans in 2011, a break cost fee couple still apply fixed rate loans depending on the length left of the loan.

Like applying for a home loan, you will need several pieces of documentation, these include:

• Proof of income - You'll need proof of a regular income (usually 3 months worth of payslips) to show the bank that you'll be able to keep up with your repayments.
• Financial statements - Proof of savings is also essential, as it'll help you appear more credible. Make sure to bring along the last 3 months bank statements.
• Identification - This is a no-brainer - the bank will need to know who you are in order to issue the loan, so have your birth certificate and other forms of identification ready.

#1 Educate yourself - Before you head to a bank, you should already have a good idea of the amount you can borrow and what you repayments might look like. You can use our personal loan repayment calculator for this.

#2 Go in with a positive credit file - Another way to prove yourself as 'credible' to a bank is by maintaining a positive credit history. Request a copy of your credit file to make sure there aren't any blemishes on your file, then take care of any outstanding debt along with paying bills on time.

#3 Only apply for the amount you need - While this may seem obvious, applying for an amount more than you need may seem risky to your bank. Keep in mind that your credit history and the amount you are applying for can mean the difference between being approved or declined, so avoid the temptation to borrow more than you need.

#4 Understand the risks - Like any financial decision, things have the potential to go wrong. As you prepare all necessary documentation before applying, you'll need to consider all risks associated with a personal loan. For instance, while it's a smart idea to set up automatic payments, make sure that you'll have enough leftover for your daily expenses.