Online personal loans - a guide to choosing an online lender
Is eating lunch at your desk the norm these days? Do you buy your grocery shopping online while bussing-it to work? If you’re struggling to find time even for yourself between work, kids and home, chances are you’re finances may be a little tired too. The good news is that these days you don’t need to make an appointment with your bank to enquire about a personal loan. Now you can apply online, anytime - your time.
Start comparing online lenders here:
A Personal loan online?
If you’ve got a comfortable income, you’re on top of your debts and feel like taking the family on an overseas trip or buying yourself something fancy, then you’re in a pretty good position to apply for a personal loan.
Why should I apply for one?
Let’s face it, having a little extra money from time to time to live it up, live it large, or to simply cover some essential bases or milestones can equate to monetary freedom. So having the flexibility of a personal loan can be certainly handy...and if you can do it all from the comfort of your desk or breakfast table, then why not?
As you do your research and use our comparison engine to compare personal loan rates, you’ll quickly learn that with the right salary and rate, repaying your personal loan can certainly be affordable, and easily managed online or even from your smart phone. Holiday? New bike? Wedding plans? See how much you can borrow with our repayments calculator.
Why apply for any loan online?
No time to queue in a bank? You no longer have to. There’s a massive change in the way we do everything from sharing information to making online purchases. And banking is no different.
Now we can transfer money between accounts, pay utility bills, pay credit card bills and apply and manage loans completely online. If you're adept to using online services for virtually anything and everything, then you already know the benefits. From time-saving to money saving, it’s really hard to imagine life without the freedom that the technological revolution brings.
What you need to know when applying for a personal loan online
Credit rating Hold your horses! Have you checked your credit rating? Is it healthy? Depending on your financier, whether you’ve missed the odd payment here and there or more frequently, chances are you’re on the naughty list and may not be able to take out a loan.
Credit file If you do have a black mark against your name and credit rating, the good news is you can start a clean slate every five years. Enough time for you to prove to yourself and prospective lenders why you’re worthy of taking out a loan. Check your rating here.
Secured or Unsecured loan?
These are the two options generally available when applying for a personal loan. There are distinct differences between the two which we’ll go into now:
- Secured loan: Paying off a home or own one outright? Whatever your collateral, you need to put something down of substantial value as well as have a steady income before taking out a secured loan. The benefits can often outweigh an unsecured loan option, purely on the basis of securing a lower interest rate, saving you hundreds if not thousands in the long run. Compare secured loans.
- Unsecured loan: Sometimes referred to as a ‘signature loan’, this is a trusting agreement between you and your financier, often with you needing to provide enough evidence that you can repay the loan, despite the fact that you don't have collateral as security. You could be self-employed or a freelancer and should expect to repay a higher rate in general.
Financial institution. That’s a bank, right?
Well, yes. But when people talk about borrowing from a financial institution, it means so much more than just a bank. You can borrow from so many bank-like places for example: credit unions, bank society, peer to peer lenders, as well as fast cash and payday lenders. Do we recommend all of them? Ah. no. Not exactly.
Should I borrow from a bank alternative?
The financial institutions that Mozo recommends are well established and well-known lenders with excellent reputations. We don’t recommend financial institutions that promise you the world and offer you very little in return.
Bank alternatives may offer competitive, or very low rates but they come at great risks that nobody can afford. Some of the risks in borrowing from alternates, especially fast cash and payday lenders have a lot to do with the tiny fact, okay, impossibly large fact that they are usually uninsured and not government-backed. This means that if their institution defaults, your investment will too.
May be a little obvious, but if you want to borrow from a banking alternative, Mozo prefers our readers to stick with well-known establishments like reputable online lenders, bank societies and credit unions. Even the Big 4 have an apply-online division, which means there’s a team especially dedicated to online loan applications only, and are not mixed up with walk-in applications.
Mainstream bank VS Peer to Peer
Sometimes referred to as P2P, peer to peer lenders are a new banking alternative for borrowing cash for a car, reno or holiday.
With mainstream financial providers, you’re usually faced with a paperwork rollercoaster ride. A rigmarole of protocol and red tape before you hear of approval. With a P2P you may not only get approval the same day of your enquiry, but even have the funds you requested the same day as well. If not the same day, you can be assured that it’ll be a lot faster than their mainstream cousins.
Some other differences:
- P2P lenders only offer unsecured loans
- Maximum loan amounts are lower with peer to peer players than traditional lenders
- P2P have shorter loan terms, up to 5 years
- Tier based interest rates. P2P lenders offer more competitive interest rates for creditworthy borrowers.
To read more see our P2P guide.
Still a little confused?
You’re allowed to be! Mozo recommends reading reviews on various products and services from real people who’ve had first hand experiences with with the type of lenders you’re interested in. Especially sensible when you’re still getting your head around Peer to Peer lenders which is a fairly new concept to Australia.
Don’t worry, approaching an alternative lender is not being rebellious, and it doesn't make you anti-mainstream or against the Big 4. Head to our personal loan reviews section for more.
How to choose the right personal loan
If you’ve already had a poke around, you’ve probably noticed there are many choices out there. But there’s only so much Mozo can say or recommend to steer you in the right direction. So it really depends on the product that sounds right to you which may suit your long term plans.
You may want to think about these factors when making a decision:
What’s the best term for my budget?
This really depends on what you’re putting the money towards and how long you can afford to keep paying your loan off. More importantly, will you be earning enough to not only cover your daily expenses but the repayment of the loan?
Let’s take this example:
You borrow $10000 on a secured loan over 3 years with 9% interest.
Your repayment is roughly $320 per month. That’s $320 per month on top of petrol, mortgage or rent, childcare, babysitting, groceries, movies, drinks with mates and entertaining at home. If you can afford an extra $320 per month to repay a loan of $10000 then you’re winning!
A big chunk of money like that is not easy to find unless you can borrow it. As long as you have a good credit rating and a regular income, there's absolutely no reason you can’t go out and enjoy that sum of money, what ever the purpose. And especially fab knowing that the total interest that you pay with our example over 3 years is $1448.
If the cards are in your favour, it’s definitely an affordable situation. But over 5 years, although your repayments per month will be less, the interest you pay in the end may be higher. Signing up for the right term for you is circumstantial-based and completely up to you, and what suits you most. See our borrowing calculator to see how much you can afford.
How do I choose an interest rate ‘type’?
Your decision shouldn’t be based on the rate alone. Low rates don’t always mean low monthly management fees or even free from any fees at all. You’ll want to base your decision on a mixture of things from around other people’s reviews, affordable repayments and low or no management costs. More importantly, will you choose fixed or variable? Let’s explore what these options mean for you:
- Fixed personal loan Lucky you. The rates are astronomically low for the first time in years and you get to secure the same rate for the entire length of your personal loan. For a personal loan, that’s usually 3-5 years. You can easily budget month by month as you know exactly how much you have to set aside for you loan repayments. Because when you secure a fixed interest loan, the rate and the repayments won’t ever change.
- Variable personal loan Ok, so your rate may go up or down according to the RBA cash rate during the term of your loan. This means that for 3 - 5 years, depending on the length of your loan you may be paying more or less for your loan repayments compared to the fixed loan variety. However the features are greater. You have the option of paying more toward your loan anytime, whereas with a fixed term you usually can’t.
How do I apply for a loan online?
Did we mention flexibility? YOU CAN APPLY FOR A LOAN 24 HOURS A DAY. Well, now that’s out of the way - if you’re just too busy to leave work, drive to a bank, stand in a queue at a bank, make an enquiry, if terms suit you, apply for loan, without having the time to enquire at another bank (because who has the time to go from bank to bank?) then possibly wait 48 hours to get a response or longer if the bank is too busy shuffling other people’s paper work, then provide more information to further verify your existence which in the end, with excellent time management between, work, kids, driving, grocery shopping and the gym (what’s that again?) you may get your loan approval within 10 days! Hooray!
Or...save time and even money by applying online. You can apply at a time that’s convenient for you. In bed before you visit the land of zzz, at the breakfast table before work or on your sun lounge during the weekend.
An online application will usually take about 20 minutes to read the fine print and fill out an online form, be it mainstream bank or bank alternative. If you’re lucky, you may receive either on the spot approval or need to wait up to 2 days to hear back. Sounds good, right? More than good.
Checklist before applying for a personal loan online:
- you need to be at least 18 years of age
- need to have a regular income or a means to repay your loan
- understand your fees and charges and repayment amounts
- have a fair idea which loan term would suit you
- know what rate type will be good for your budget
- email address (digital age of course)
- driver’s license for ID verification
- annual income before tax
- sum of monthly expenses
- information about assets
- sum of current debt in forms of mortgage, personal loans, car loans and credit cards.
Rest assured your application will be safe, secure and quick as a flash.
How do I know my personal information is safe?
Good question. Any time you input your personal information like the checklist above, you need to ensure you’re posting on a safe and secure site. To check this, you can locate a ‘padlock’ on the top of your page, alternatively, check that your page starts with https:// Just think of the ‘s’ standing for ‘secure’.
If you don’t see the ‘s’ or the padlock in the top page, then close the window and apply with another financial provider. This type of sensitive information is not for prying eyes! Just you and your lender alone.
Tips for getting your online loan approved
If you don’t earn a what financial institutions consider to be a decent income, you can kiss your prospects at borrowing any amount goodbye. What’s a decent income? Well that’s between you, the application calculator and your lender. Remember, influencing factors will include things like dependants, monthly expenses including mortgage and rent. Here are more tips to consider when wanting that big shiny tick of approval for your personal loan:
1. Check your credit history. As we’ve discussed, a good credit history can take you a long way, especially when you want to apply for a personal loan online. But before you do, check your rating first to see where you stand. Try the office of the Australian Information Commissioner.
2. Maintain a good credit rating. If you’ve discovered your credit rating is sluggish, you may be able to improve it before making an application to a loan. After all being rejected from a loan application can slump your prospects of getting one in the future even further. Having a mediocre rating can allow you to be approved a fairly limited amount. But having an awesome credit rating can help you plan for the next journey in your life just the way you want.
To improve yours, you may want to put off from applying for a loan for up to 6 months to really prove your worthiness. By demonstrating that you’re a responsible borrower, who actually repays on time and even more than the minimum monthly amount due, then your credit rating will improve very well indeed.
3. Debt-to-income ratio. Be honest with yourself and your lender about how much you make. Being able to repay your debt comfortably is the best strategy you can take when borrowing money. Lying about your income or inflating it for the sake of ego or to increase your borrowing power may not only get you in strife if you’re approved, but also if you’re caught out - causing you to miss out on a great opportunity to borrow money that could have helped your immediate future.