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What to Consider When Applying for a Personal Loan
March 25, 2021●
5 minute read●
There are a plethora of personal loans available to consumers. Whether you are looking for a short term loan, a loan for a larger purchase or a consolidation loan to get on top of your debts, there are many things you should consider before you send your application through. Here are our top 5 things to consider when getting a personal loan.
The interest rate you agree to will largely decide how much you end up paying back for your loan. There are two main types of interest rates: variable interest rates and fixed interest rates.
Fixed interest rates remain the same throughout the duration of your loan term. If you agree to a fixed interest rate, the amount of interest you pay over the life of your loan will be predetermined and you can budget accordingly.
Variable interest rates fluctuate, going up or down, depending on the underlying interest rate or benchmark that changes periodically.
Whether you choose a fixed interest rate of a variable interest rate, how high or how low your rate is will largely depend on whether you choose an unsecured personal loan or a secured personal loan.
Unsecured personal loans
Unsecured personal loans are loans in which the lender agrees to lend the borrower money without any attached collateral. Without this security, often lenders will compensate by charging a higher interest rate.
Secured personal loans
Secured personal loans require the borrower to offer an asset to hold as security against the loan. This could be in the form of a car, motorbike or caravan. If the borrower becomes unable to repay their loan, otherwise known as defaulting on the loan, the lender can repossess this asset to cover their losses.
To clearly illustrate the different interest rates make on the amount you end up repaying on your loan, let’s use an example of a 5-year loan of $10,000 at varying interest rates.
||Total interest paid
Fees and charges
In addition to interest, you will likely be charged other fees and charges. These costs can also have a large impact on the amount you end up paying on your loan. In order to ensure that the loan product you choose is competitive, you should consider not only the offered interest rate but the additional fees and charges.
Often, lenders may offer a lower interest rate to entice customers and sneak in high fees and charges to recoup their money. Jacaranda Finance has no hidden fees or charges; every possible fee and charge is clearly outlined in the loan contract. Lenders must disclose the fees and charges to you, which may end up hidden in your loan contract. Ensure that you pay attention to this before agreeing to a loan that is more expensive than you initially thought.
Additionally to your regularly scheduled repayments, a great way to pay off your loan and be debt-free faster is to make extra repayments when you are able to. There are some lenders that charge fees for doing so, and fees for early settlement on your loan. Early repayment fees can range from $0 to $800, with $150 being a common amount. It is important to find a lender that is flexible in terms of your payments.
As with any product or service you wish to purchase, good customer service is essential. Particularly when your finances come into play, you want to ensure that you are dealing with a reputable company that you can trust. While your particular needs may vary, it is important to use a lender that answers any of your account queries or questions quickly and accurately.
You can find a good indicator of customer service and satisfaction from a simple Google search of the company. For example, Jacaranda Finance has been rated 4.9/5 stars on Google; this indicates that we provide a high-quality level of customer service. Reviews can be a helpful indicator of what you can expect from the company.
The length of your loan
Getting a loan with a longer loan term may seem like a good idea. Typically, you will pay less in instalments and have a lower interest rate if you have a long-term loan. However, you will still pay more in interest the longer your loan term is because you will have more time to accrue interest each month. Let’s illustrate this with an example in the table below:
||Total interest paid
By simply extending the loan term from 2 years to 7 years, you would end up paying an extra $3,778 on your loan; that is over three times the amount of interest you would have paid on the 2-year loan term. Opting for a short term loan with larger repayments, if manageable, is a much better option for paying less and being debt-free sooner.
Jacaranda Finance is an experienced lender that specialises in fast loans for Australians in need of short term financial assistance. We are a 100% online lender, meaning that we are able to provide proficient, fast and easy service. We offer small loans from $300 to $10,000 for eligible applicants in need of fast cash. We often deliver loan outcomes within just 60-minutes and we support instant transfers on approval. When you need money quickly, Jacaranda Finance will have a credit option for you.
Written by Jacaranda Team