Different types of loans in Australia
There are different reasons people take loans. It goes from loans to buy household items to loans for vehicles or homes. You can get a little loan from family or friends in the form of promissory notes. You can also get personal loans from credit card lenders or mortgage loans for buying a home.
Almost anyone will be able to get loans from the bank and other creditors for such things as cars and student loans. However, loans given to small people or veterans are only available to select individuals and groups.
Learning about the types of loan available to Australians in various situations is necessary. It’ll arm you with relevant information to make the right financial decisions. You’ll know what loan to go per time and what to expect from lenders. You’ll also know how to negotiate with a creditor when you apply.
The law has a stake on every type of loan available, both at federal and state level. It regulates the conditions for borrowing and repaying debt. The law is also poised to keep borrowers safe from unfavorable borrowing conditions that include high interest rates and long term debts.
As a customer, you should know what the terms of borrowing from a creditor are. The details should be properly written out. It should include length of borrowing time and consequences for default. You don’t want to be taken unawares when your lender begins to take legal actions against you. Even borrowing from family and friends should have a detailed agreement.
Loans in Australia
There are many types of loan in Australia. They are grouped according to the purpose of borrowing and repayment plan. Some loans can be used to take care of everyday purchases. While you pay back in installments over a period of time.
As always, loans vary according to their use and how they are executed. The interest rate, payment method, time, and default penalties are all included in the loan agreement.
Loan from Friends and Family
This is usually the least formal type of borrowing. If you have loved ones who can lend you money when you need it, that’s a good option. It has many advantages, especially if you are disciplined. One of the reasons you should consider borrowing from friends is that they are less likely to charge you any interest or compound interest. They will also be more likely to be flexible with repayment.
However, if you are not so disciplined, you may take this privilege for granted and put a strain on your relationship. A good way to avoid this is to sign promissory notes with your creditor. That way, both parties know what to expect from the interaction until you’ve repaid the loan.
There are various reasons for taking personal loans. They range from consolidating debts to home repairs to buying personal items or investing. Personal loans can be secured or unsecured. Your needs will determine which type to apply for. Borrowing also depends on your credit history.
It’s always best to borrow money that you can afford. Read through the terms of your contract to be sure that you understand all the details of your payment. Know what your timelines are and the legal implications of default. Also consider the loan you want to choose for interest rate and other related fee charges.
Types of personal loans include Debt Consolidation, Line of Credit Personal loan, Short term loans, Secured car loans, Secured credit loans, and Unsecured Personal loans.
Unsecured Personal Loans
You can get a loan without pledging any asset as a collateral. This is an unsecured loan. It is flexible, allowing you to use your money for anything you want. However, it usually comes at a high interest rate because your creditor considers it a high risk business. The catch here is that you have a variety of options to choose from. While the government regulates the range, creditors are free to fix their rates according to their policy. But you can apply for the one that suits you better.
While you are free to use an unsecured loan as it suits you, your lender may want to get a list of things to intend to do with the funds. This will inform their decision to lend to you or not. You will be able to borrow between $1,000 and $100,000 depending on your creditor and your credit history. And your payment plan may span anywhere between 1 year and 7 years.
When applying for a loan to get a car, you can use the same as collateral to access the loan. This type of loan is secured. It means that you pledge an asset that your creditor can seize if you default in your payment. But cars are not only the only things you can get with a secured loan.
You can get home equity on secured loans. You can even plan a holiday on a secured loan. However, whatever you are pledging for the loan should be well worth the money you are borrowing. You can take loans worth up to $100,000 and pay up within a 7 year period.
Your lender decides whether what you are pledging meets his requirement for lending on a secured loan. Albeit, the interest rate is often lower than unsecured loans because lenders can fall back on the collateral if you default.
Debt Consolidation Loans
Some debtors owe more than one creditor and each debt has its own interest rate. This can become overwhelming as you struggle to keep up data on who you owe and how much you owe. Debt consolidation helps to lessen the burden by putting the debt in one place and assigning a single interest rate to it. It becomes easier to handle with reduced rate and a more flexible time to complete payment.
With a bit of guidance, you can calculate your debt to know what you would need to pay off your entire debt put together. Then, compare offers from different lenders to know which plan suits you. When you get the loan and have paid off your debt, you’ll have to pay off the personal loan you took.
Albeit, there are other ways to consolidate your debt without taking a personal loan.
There are many ways to get a loan for a car. You can get an unsecured or secured loan to use at your description. Or you can take a car loan specifically.
If you choose to get a car loan, there are a variety of options. Some options are specific to individual buyers while others are more suitable for business people.
A secured car loan allows you to get one using the same car as collateral in case you default. While an unsecured car loan does not require a collateral from you, it charges a high interest rate. Other forms of car loan include chattel mortgage for self-employed workers, car hire purchase, novated lease, and car lease.
You can speak with a financial adviser before you make a decision and also compare options from different lenders.
Line of Credit Loans
Think of this as the meeting point between credit cards and personal loans. It has similarities to a credit card and to a personal loan. Compared to personal loan, the difference here is that the lender does not give you the funds applied for in a lump sum. You are granted access to a limited amount but you access it when it’s necessary. It also means that the only time your creditor charges you is when you draw from the funds.
Compared to credit cards, the balance is billed and paid off monthly. Or at the end of a billing cycle. However, the credit limit on a line of credit is higher than that of a credit card. Also, the interest rate on line of credit loan is lower than it is for credit cards.
Line of credit loans are also great for consolidating debt. If you want to have steady access to your loan instead of a lumped up imbursement, personal line of credit is a good option.
This type of loan is given by a lender who acts as a facilitator for investors who pull funds together to invest in consumer loan portfolios. When you apply for a P2P loan, you don’t get the loan directly from an investor. Rather, the lender provides investors with a platform where they can invest. They are now able to get attractive interest from investing in the loan portfolios. The borrower is then charged interest individually and with respect to their credit score.
While the credit limit available from P2P loans is generally lower than bank loans, it provides lower interest rates. It’s also widespread in Australia and easy to apply for online.
Short Term Loans
Short-term loans are often provided to people in the hope that they pay off when they get paid. If you take a short-term loan, you’ll have to pay back between 62 days to 12 months. They are expensive. Not to mention that you’ll be charged some fees if you default along with the dent it leaves on your credit history.
Pensioners often have it harder to get loans because creditors consider them higher risk. Again, borrowing comes at a high interest rate and this may not be favorable for those on low income or support.
Yet, as a pensioner, you have a number of options you can explore if you need a loan. One of them is to talk to your bank. This will especially be helpful if you’ve had good credit history with them. They’ll let you know the options that are available to you.
Other credit options include low doc loans, short term loans, bank loans, and loans for retirees. Some of the loans come with high interest rates. You want to compare your options before you make a decision.
Alternatively, you can check which government scheme for pensioners will be suitable for you. They include pension loans scheme, no interest loan scheme, and centrelink cash advance.
Often, when people are looking for ways to come out of debt, they resort to payday loans. However, payday loans tend to worsen your financial strain if you are unable to pay back in time. The interest rate on this type of loan makes it unsuitable for long-term loans. And you should be sure you can repay this promptly before opting for it.
If you must take a payday loan, ensure your creditor can be reached easily and that they have a credit license on the register of ASIC. Also ensure they don’t charge you more than is endorsed by ASIC. Though you should bear in mind that this type of credit has a very high interest rate.
This is similar to a payday loan and cash advance. It’s necessary for short-term financial needs because the contract often requires you to pay off within one year. Loans gotten in this form are usually within the range of $2,000 paid into the borrower’s bank account. If you’re applying online, you’re likely to get a faster response from the creditor.
A business loan will vary according to the agreement between the business and the creditor. Businesses are often allowed to borrow funds between $5,000 and $1,000,000. The loan can be secured or unsecured and, in each case, fixed or variable rate.
When you borrow money as a business, you can decide if you want the funds to be made available as a revolving credit line or you want it in lump-sum. Repayment may be agreed depending on what suits you and your creditor. And the debt term may span up to 5 years.
Secured Business Loan
– A lot of creditors do not put a cap on how much you can borrow if you can provide security for your loan. Plus, a secured loan has lower interest rates. Security can take the form of commercial property or residential property.
Unsecured Business Loan – If you don’t have an asset to tie to your loan, you can take an unsecured business loan. As always, you’ll have to pay higher interest rate during repayment.