A personal loan can be used to pay whatever you please. From a luxurious holiday to kitchen renovations; it is easy to apply for a personal loan from lenders in Australia.
Read this guide to be fully prepared as a borrower.
How to get a Personal loan in Australia
The most straightforward way to borrow money is to apply for a loan online. These credit products are offered on the websites of lenders, which you can find here. You will also find complete details on the interest rate, fees and repayment structure and term.
You can apply entirely online and have the money in your bank account shortly after approval. All registered lenders in Australia adhere to the rules and regulations of the National Credit Act irrespective of whether they operate online or in traditional offices. When you work with a registered lender, you can be certain that your rights as a borrower are fully protected.
In order to make an application for an online loan, you need to fill out the respective form available on the website of the micro lender. The lender will use the personal details which you provide to perform a credit check. Any documents which are required as part of the application process and the signed loan agreement can be submitted in two ways. You can fax them or scan them and send them via email.
Once the documental part of the deal has been concluded, the granted loan amount will be wired to your bank account.
The receipt of the funds transferred to the borrower's bank account is typically quite quick.
Approval shouldn't take more than 1 working day
It is also possible for you to have the funds in your bank account in just a few hours. Lenders are typically not able to provide foolproof guarantee of the receipt of the money within a set period of time because the speed of the transfer depends on the bank of the borrower as well.
Always check the interest rate
There are several important factors which you must consider before you take out an online loan. You must check the interest rate. It is typically fairly high for short-term unsecured loans. You have to consider the fees and any other charges as well. You need to calculate the total amount of money which you will have to pay back and the size of the regular payments. This will help you to make a final decision on the affordability of the loan.
Consumers in Australia are protected by the National Credit Act when they borrow money. Lenders are legally required to present the full loan information to consumers in order to enable them to make well-informed decisions.
You should definitely use this information not only for determining the affordability of a loan, but for comparing different options as well. Additionally, you need to know that since 1st July 2013, fee caps are applied on loans of small to medium size provided by lenders which are not Authorised Deposit-taking Institutions (ADIs).
It is important that you plan for the repayment of the personal loan in advance.
You should include the monthly payment on the loan into your budget. You need to make sure that you will not spend more than you can afford every month. Stay away from treats and luxury items which you do not have sufficient cash for. It pays off to build an emergency fund which you can use in case of a cash emergency such as a broken down car which required immediate repair. In this way, you will reduce the risk of defaulting on the loan to the lowest possible minimum.
Consumers are protected by the responsible lending conduct
All licensed credit providers in Australia must follow the responsible lending conduct obligations defined in Chapter 3 of the National Consumer Credit Protection Act 2009. For this, they need to evaluate the financial situation, requirements and objectives of each applicant and to determine whether the offered loan is suitable for the person. Lenders focus extensively on the ability of the lender to pay back the loan. If you have a smaller disposable income due to high spending or high debt, you will have lower chances of getting approved. The refusal of credit in such cases is a measure for protecting the applicant from getting into more debt.
Each lender in Australia is free to meet the responsible lending obligations in an individual way. The assessment process of one lender may determine you to be an eligible applicant for a specific type of loan and loan amount while the process of another may show that you are not eligible for a similar product and the same loan amount.
Even if you are approved for a loan by a responsible lender, you must do your own calculations to confirm that you will be able to repay it.
When you apply for a loan to a licensed credit provider, the lender will perform a thorough check on you. The assessment will be based on your income, existing debt and credit history. You will stand the best chances of approval if you have stable employment income, low debt-to-income ratio and good credit record.
For this reason, you should make every effort to manage your finances in good order.
Various types of Personal loans
Personal loans can be divided into two major categories based on their term. The term is correlated to the loan amount and repayment structure.
Find out more about the two main types of personal loans.
Short & Mid-term Loans in Australia
The repayment term is typically from 16 days to 5 years, but it may be longer as well. Under the current regulations, it cannot be shorter, however. In this category, you will find quick cash loans, payday loans, car loans and other motor vehicle loans. Based on repayment term, credit cards and overdraft facilities belong to this category as well, even though they are credit lines rather than loans.
The short and mid term loan amounts range from as little as AU$ 1,000 to as much as AU$ 100,000. It may be possible to borrow even smaller amounts from some lenders.
The amount which you can borrow is determined by your ability to pay back the loan given your income and existing debt and the interest rate and fees applied.
Most of these personal loans are not secured and this results in considerably high interest rates. Lenders typically take into account the individual credit risk of each loan applicant when they determine the interest rate. A higher risk corresponds to a higher interest rate.
The long term loans have a term which is typically over 10 years. The loan amounts are large. These loans are usually secured. The typical security is an asset of high value which the lender has the right to take over in the case the borrower cannot pay back the loan. The most widely used assets are personal properties. The main types of long-term loans include home loans, home equity loans and debt consolidation loans.
Personal loans in Australia are easily accessible
Especially to consumers who have stable employment income, low debt and good credit history. They are among the most useful tools for financing purchases and resolving cash emergencies. However, they are not suitable to use for the repayment of existing debt since they are usually unsecured and this results in higher interest rates.
If you have difficulties with debt repayment, you should consider debt counselling and debt consolidation.