A personal loan can come in handy when you wish to buy a car, take your family on vacation or renovate your home. In Australia, you will find thousands of different personal loans to choose from. Every loan will have its own features, terms and conditions and characteristics. So, how do you decide which loan to opt for and which to avoid?

This blog will teach you how to compare personal loans and shed light on factors that you must consider before applying for one.

So, without further ado, let’s dive right into the discussion!

What Is a Personal Loan?

A personal loan, whether secured or unsecured, is a lump sum payment that you need to repay over a certain time period along with interest. Personal loans are usually given by banks, credit unions and other private lending institutions. In Australia, you can get a personal loan between $2,000 and $100,000 for up to 7 years or less, depending on the amount. 

A secured personal loan is a loan that requires you to deposit an asset as collateral against the loan amount. An unsecured personal loan does not require any collateral. However, it has a higher interest rate than a secured personal loan due to a greater chance of defaulting.

A personal loan can be used for a variety of expenditures. You can take a personal loan to consolidate a debt, like credit card debt, buy a car, take a vacation, host a wedding or start a small business.

How to Compare Personal Loans in 5 Ways

1.      The Interest Rate

When you cannot decide between two or more personal loans, the first step is to look at their individual interest rates. You must know this interest rate, so you are aware of the outstanding amount over and above the principal amount that you need to pay. Interest rates are decided by the lender and will be communicated to you when the loan contract is drawn up.

Personal loans will have either fixed or variable interest rates. Fixed interest rates will be slightly higher because they do not fluctuate with the market. You will have to pay the interest amount calculated using the fixed rate during a specific time period. Variable interest rates, on the other hand, will change with market fluctuations. However, they offer flexibility as they allow you to make extra repayments toward your loan when the rates fall.

2.      The Comparison Rate

A comparison rate is a percentage that tells you the interest rate and fees charged on the personal loan. It shows the true cost of the loan. Some personal loans have decent interest rates but have high application fees or extra charges that make the total cost must higher. When wondering how to compare personal loans with similar interest rates, look at the individual comparison rates. For example, a loan might have an interest rate of 12% per annum but a comparison rate of 14% per annum, indicating that the loan has extra charges. However, if a personal loan has the same interest and comparison rates, it means that the loan does not include any extra fees.

3.      Loan Type

It would be best to consider the loan type before you choose a loan. Unsecured loans have high interest rates. However, if you are sure that you will not default on repayments, then a secured loan that requires you to set an asset as collateral (like a mortgage) is a good choice because it has a lower interest rate.

Some loans come with specific restrictions. For example, a car loan is a personal loan that can only be used for the purchase of a car. You cannot use the money from the loan for any other purpose. You should be aware of any such restrictions before you apply for a personal loan.

4.      Loan Terms and Contract

When you apply for a loan and get approved, you will be asked to sign a contract. Loan contracts usually contain information about how long the loan term will be, when and how you will have to repay the loan, the interest rate that will be charged on a loan, etc. Before you sign any personal loan contract, please do read the terms very carefully. A contract will bind you legally so you must know what you are getting into.

5.      Your Credit Rating

Your credit history and score has an impact on the interest rates that will be charged to you. The better your credit history and credit score are, the lower the interest rate will be for you. When you know your score is good and your credit history is great, you should opt for a loan that offers a range of interest rates, so you are able to snag a lower one.

Your credit rating can also impact your loan approval. Not everyone is eligible for a personal loan. Some loans have strict requirements, whereas others are even given to those with bad credit. If you have bad credit and are looking to secure a personal loan, head over to none other than CashOnYourMobile that provides personal loans of up to $50,000!

Personal Loans from CashOnYourMobile

Once you have learnt how to compare personal loans, it’s time for you to sit down and consider all your options so you can choose the best fit for your financial needs. CashOnYourMobile, Australia’s most trusted lenders, can help you secure instant cash in just 4 hours to fix all your money problems. If you are an Australian citizen or permanent resident who is over 18 years old, earns at least $550 a month and has a savings or direct-deposit account, you are eligible for a personal loan! Visit our website and apply today to secure your funding instantly.