Shopping around for the best personal loan can save you thousands in interest and fees. But the interest rate is only half the story.
It’s tempting to jump on a loan with the lowest interest rate. But what about those hidden fees and costs that can catch you off-guard? Comparison rates do the hard maths for you by rolling together the interest rate, upfront fee and service fee into one percentage figure. It gives you a more accurate understanding of the cost of your personal loan.
Why is the comparison rate important?
You might be surprised to learn that the personal loan with the lowest interest rate isn’t always the cheapest. Once you factor in the relevant fees and charges, the true cost of the loan could be very different.
A comparison rate takes into account the:
- loan amount
- interest rate
- loan term
- fees and charges·
The comparison rate paints a more realistic picture of the personal loan than you can get by simply comparing only personal loan interest rates. It helps you weigh up your options and find a personal loan that best suits your needs.
Where can I find comparison rates?
Financial comparison sites like Canstar, Ratecity, InfoChoice and Mozo can help you find and compare the best deals on car loans quickly and easily. Keep in mind, comparison sites could be influenced by advertising. It’s always a good idea to check a variety of sources to see a broad range of options and compare the ratings and rankings.
Just remember, it doesn’t make sense to compare apples with oranges. Make sure you’re assessing the same loan type. For example, only compare an unsecured loan with other unsecured loans.
In Australia, lenders are required to show a comparison rate as an annual percentage when they advertise an interest rate. It’s a vital tool when researching the cost of the loan but it’s not perfect. Comparison rates don’t include early repayment fees, late repayment fees or deferred establishment fees, and it only applies to personal loans that have a fixed term.
Keep these factors in mind when deciding which personal loan is right for you:
- Interest rate: check the comparison rates
- Loan type: decide between a secured and unsecured loan type
- Fees: upfront plus ongoing fees
- Loan term: personal loans are generally repaid over 1 – 7 years
- Features: does the personal loan include a redraw facility and/or can you make extra repayments without penalty?
- The Lender: choose a lender with excellent customer service
Will I qualify for a low rate?
The best way to know whether you will qualify for a low rate on a personal loan is to know your credit score. Generally speaking, the higher your credit score the better. Other factors that will impact your chances of being approved include:
- Strong, steady employment background
- Home ownership
- Purpose of the loan
Find out your credit score before you apply for a personal loan. You can do this online for free through government financial guidance site Moneysmart, or financial comparison sites like Canstar.
Your credit score takes into account information like the number of credit applications you’ve made and the amount of money you’ve borrowed. It also notes your history of repaying debts on time.
A typical credit score will fall between zero and either 1000 or 1200, depending on the credit reporting agency. The higher the score, the better!
Checking your credit score is a worthwhile exercise. It can help you negotiate better deals or understand why a lender rejected you. If you spot any errors in your credit report, you can fix them for free by contacting the credit reporting agency.
Once you’ve made a short list of the best personal loan deals, be sure to read the Product Disclaimer Statement (PDS) which explains all the fees and loan features in detail.
Remember, the best personal loans aren’t just about what’s written down in black and white. It’s worth checking customer service ratings and reviews to find a lender with a friendly, helpful and responsive team. Good customer service can make a big difference to your overall experience.
Once you’ve decided on the best personal loan for you, contact the provider. Don’t be afraid to ask them as many questions as you need to, until you feel satisfied that you’re ready to commit.
If you want to pay back your personal loan early, you could be stung with a higher early repayment fee. But remember, Plenti will never charge you fees or penalties for paying your loan back early. It’s your life. You’re in control.