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If you’re looking for a way to manage debt, a personal loan may be the answer.

The financial boost is useful for debt consolidation, paying off big-ticket items like school fees, business expenses, home improvements or a car. However, if you don’t choose the right lender and loan, you could be forking out more than it’s worth.

Since last year, rounds of stimulus packages have provided some relief. Although these government-issued payments have been helpful, they haven’t stretched far enough for many. Personal loans fill the gap. Still, with lenders tightening requirements and incomes less steady, there are new questions to ask and factors to consider for finding a personal loan suitable for your needs.

The below tips will get you started.

1. Weigh Up the Best Features

Features like low-interest rates and flexible repayments sound good, but are they right for you?
Consider which are most important based on your financial goals. Some lenders allow you to defer or move your next payment date if income is sporadic or you’re experiencing hardship. Or if debt consolidation is essential, choose a lender who sends payments directly to your creditors.
Other features to weigh up are:

  • Extra repayments (additional and lump sum)
  • Borrowing power
  • Redraw availability
  • Ongoing fees and charges
  • Customer service
  • Short loan terms

2. Apply for the Right Amount

Personal loans are there to help you out in the short term. Don’t let it leave you with long-term debt because you’ve bitten off more than you can chew.

The right amount should be based on what you need the personal loan for and how much extra you’ll pay in interest, fees or charges. Make sure the end figure is realistic, so you can comfortably make repayments. Use an online borrowing calculator to work out your repayments and interest rate. Remember, applying for a higher personal loan than you need could be the difference between being declined and being accepted.

If you want to reduce the impact of loan repayments on your current cash flow, consider reducing the amount or extending the loan term.

3. Avoid Personal Loan Traps

Aim for a smooth application process by staying away from personal loan traps. These mistakes could end up costing you more:

  • Not reading the fine print before signing
  • Failing to research loan restrictions
  • Taking out a personal loan for something you can save for
  • Not comparing lenders and loan types
  • Forgetting to check your credit score
  • Applying for multiple loans at once
  • Not checking early repayment penalties
  • Failing to understand the pros and cons of the loan term
  • Overlooking the purpose of your personal loan
  • Forgetting to evaluate the lender’s customer service options
  • Using payday or fast cash loans, which usually have hefty upfront fees
  • Not understanding how personal loans work

4. Look Beyond the Big Banks

Banks aren’t your only lender options.

Hunt around for alternatives which could be more practical for your needs. By looking beyond the big banks to smaller online lenders, you’ll have access to more competitive rates.

Nonprofit credit unions are also another option. Their rates and fees are likely to beat what major banks typically offer.

5. Get Your Finances in Good Shape

How healthy do your finances look?

Know where you stand by checking your credit score and accounts early. Before taking out any loan, you’ll need to show a good savings record and maintain your accounts and credit score. Missed or late payments, arrears and debt collection may impact your credit rating.

If your accounts look like they’ve seen better days, build a better score by:

  • Paying off debts
  • Setting reminds to pay bills on time
  • Bringing any delinquent accounts current
  • Finding a lender that works with you to help rebuild your credit
  • Knowing what banks and other lenders look for when reviewing an application

Shopping for a personal loan involves more than a couple of steps. But finding a loan that lowers your monthly payments and simplifies your finances will pay off in the long run.

Do you have any tips to add to this list about how to choose the right personal loan for you? Tell us in the comments below. 

  • Thanks for the tips, very helpful.

    Reply

  • I prefer to add anything to the homeloan, the interest rate is a lot lower than any personal loan

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  • Good list of points. Really important to shop around, look at t&c, and in my experience customer service, is key. Don’t get swayed by branding and initial attention when trying to get your business. Make a random call and check if you can you reach anyone, are they polite and helpful, or all outsourced, and you select automated numbers which transfer you, and little or no assistance.

    Reply

  • Definitely try to pay off any debt ahead of the timeline…but make sure there is no early termination fee.

    Reply

  • Always research, and do your figures carefully before taking out a personal loan.

    Reply

  • Broker is the best advice I’ve been given.

    Reply

  • Financial know how is so important in every aspect of life

    Reply

  • A good article with information everyone should be aware of.

    Reply

  • Always shop around and make sure you are confident in your choices.

    Reply

  • This is really sensible. Just be careful you don’t overcommit.

    Reply

  • We always look outside the big banks for the best deal.

    Reply

  • We are currently thinking about buying another car, thank you for these tips, they will help a lot

    Reply

  • Good points. Budget and prevent to go in debt in the first place as well.

    Reply

  • These are some really good points. Thanks!

    Reply

  • Thank you for sharing. Always check and think about your choices

    Reply

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