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 even struggling to find time for yourself between work, kids and home, chances are your 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:
Online Personal Loan Comparison Table - last updated January 16, 2021
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 might consider applying for a personal loan.
Why should I apply for an online personal loan?
Let’s face it, having a little extra money to live it up, live it large, or simply to cover the essentials 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 dining 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 budget and rate, repaying your personal loan can be achievable, and easily managed online right from your smartphone. Booking a holiday? Need a new bike? Planning a wedding? See how much you can borrow with our repayments calculator.
Why apply for any loan online?
No time to queue in a bank? Well, you no longer have to. There’s been a massive change in the way we do just about everything from sharing information to making purchases online. And banking's no different.
Now we can transfer money between accounts, pay utility or 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'd already know the benefits. From time-saving to money-saving, it’s 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 if your credit rating is healthy? Depending on your financier and whether you’ve missed the odd payment here (or more frequently), you could potentially be on the naughty list and might not be eligible for a loan.
Secured vs. unsecured loan?
These are the two options generally available when applying for a personal loan. There are some 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 with 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 personal loans.
- Unsecured loan: Sometimes referred to as a ‘signature loan’, an unsecured loan is a trusting agreement between you and your financier, in which you'll need 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. Compare unsecured personal loans.
Is a 'Financial institution' a bank?
If you're thinking to yourself, "financial institution - that’s a bank, right?" Well, yes, it is. 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 with significant risks that most people can't afford. Some of the risks involved with borrowing from alternative lenders (especially fast cash and payday lenders) are that they may not be insured or government-backed. This means that if their institution defaults, your investment will too.
If you want to borrow from a traditional bank alternative like an online lender, bank society or credit union, make sure you go with one that's well-known and reputable. Even the big four have an apply-online division, which means there’s a team specially dedicated to online loan applications, and don't deal with any walk-in applications.
Traditional 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 tonne of paperwork and rigmarole of protocol and red tape before you getting approved. With a P2P you could potentially be approved and have the funds in your account one the same day of your enquiry. If not the same day, they're usually much faster than the mainstream banks.
Some other differences:
- P2P lenders usually only offer unsecured loans
- Maximum loan amounts are often lower with peer to peer players than traditional lenders
- P2P tend to have shorter loan terms (usually up to 5 years)
- P2P lenders generally offer tier-based interest rates, which means more competitive interest rates for creditworthy borrowers.
To read more, see our P2P guide.
Read personal loan reviews
Mozo recommends reading personal loan reviews on various products and services from real people who’ve had first-hand experiences with the lenders that you’re interested in. This is an especially good idea when you’re still getting your head around peer to peer lenders which is still a relatively new concept to Australia.
How to choose the right personal loan
If you’ve taken a look at our personal loan comparison table, then you’ve probably noticed there are many choices out there. At the end of the day, it really depends on which product sounds right to you and suits your budget and financial situation.
However, here are some factors you may want to consider 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 $10,000 on a secured loan over 3 years a with 9% interest rate.
Your repayment amount is roughly $320 per month. That’s $320 per month on top of petrol, mortgage/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 $10,000 then you’re winning!
As long as you've got a good credit rating and a regular income, then you might be able to afford to borrow this sum of money. And especially great, knowing that the total interest that you'd pay over 3 years is $1,448.
But over 5 years, although your repayments per month will be less, the interest you pay in the end could be higher. Signing up for the right term for you is circumstantial-based and entirely up to you, and what suits you most. Check out our borrowing calculator to see how much you can afford to borrow.
How do I choose an interest rate type?
Don't base your decision on just the rate alone. Low rates don’t always mean low or no monthly management fees. You’ll want to base your decision on a number of things, like customer reviews, repayment amount and fees. You'll also need to decide on whether you want a fixed or variable rate. Let’s explore what these options mean for you:
- Fixed personal loan: With a fixed rate you get to secure the same rate for the entire length of your personal loan (usually 3-5 years). Budgeting for a fixed rate is generally easier as you'll know exactly how much your repayments are each month. Because when you secure a fixed interest loan, the rate and the repayments won’t change.
- Variable personal loan: With a variable rate 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 a fixed loan rate. However the features are usually better. You generally have the option of paying more toward your loan anytime, whereas with a fixed term you often can’t.
How do I apply for a loan online?
With an online loan you can apply 24 hours a day. Which is great if you’re too busy to leave work, drive to a bank, queue up to apply then wait possibly 48 hours to get a response (or more if the bank's too busy shuffling other people’s paper work), then provide more information to further verify your identity, then potentially wait as long as 10 days to get approved... or rejected!
By applying online you can save both money and time and apply when it's most convenient for you.
An online application usually takes about 20 minutes or so to read the fine print and fill out an online form, be it mainstream bank or bank alternative. If you’re lucky, you could receive either on the spot approval or need to wait up to 2 days to hear back. Sounds good, right?
What you'll need to apply 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
- To understand your fees and charges and repayment amounts
- Understand which loan term would suit you best
- Know what rate type is best 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 visiting 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 go 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 steady income then lenders will be less inclined to approve you for a loan. Other influencing factors include things like dependants, your regular expenses including mortgage or rent.
Here are some more tips to increase your chances of getting approved for a personal loan:
1. Check your credit history: As we’ve discussed, a good credit history can take you a long way, especially when applying 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 poor, you should work to improve it before applying for a loan. Being rejected from a loan application can slump your prospects of getting one in the future even further. With a mediocre rating you might be approved for a small loan, but the better your credit rating, the more likely you'll get approved for a larger amount.
If you want to improve your credit rating, you may want to put off 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.
^See information about the Mozo Experts Choice Personal Loans Awards
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