When it comes to getting a good deal on personal loans, credit unions mostly beat the major banks. Research group Canstar Cannex recently completed a ‘star rating’ of personal loans, and among the 43 loans awarded the top 5-star rating, not one came from a bank.
Canstar’s ratings are based on loan features as well as the interest rate but even if you restrict your search to low rate loans, it’s still hard to beat the non-banks. Credit Union Australia for instance charges 11.2% on an unsecured loan – the only catch is that you’ll need at least 20% home equity.
If you can offer some security, it’s possible to get an even lower rate. IMB for example has a rate of 9.9% on secured personal loans. When it comes to secured car loans – with the vehicle acting as collateral, you can pay as little as 9.34% with Gateway Credit Union.
These are competitive rates but when it comes to personal loans it is critical to look at all the costs involved. Many loans come with upfront charges and monthly fees, which can really bump up the overall cost.
GE Money, for instance, charges a $250 loan application fee. If you’re borrowing a relatively small amount like, say, $5000, this instantly adds an extra 5% onto the cost of the loan.
Depending on how you plan to use the loan funds, you could be entitled to special rate discounts. Around 13 credit unions and building societies offer personal loans for ‘green’ or environmentally friendly purposes.
Cars with good fuel efficiency and low carbon emissions like the Toyota Prius and Honda Jazz can attract rate discounts of up to 2%.
On the home front, discounted personal loans are also available for the purchase and installation of solar panels, rainwater tanks and white goods with a high energy rating.
Over the last year personal loans have increasingly been used as a means of debt consolidation. It’s an area that has seen demand grow by 50 per cent.
If you’ve got an unmanageable number of debts or you’re just not making progress paying off a credit card, using a single personal loan to pay out your other debts can be a money saver.
The fixed repayments make personal loans easy to budget for; you have a set date when the debt will be cleared and as the term usually extends over seven years or less, the interest charge doesn’t drag out over decades as it can with a home loan.
This is important. If you take out a personal loan to repay higher interest rate debt from credit cards, makes sure you do just that, pay the cards off. Don’t take out the personal loan, spend the money, then find yourself still with the credit card debt and a personal loan to repay too! Some people do this – please don’t be one of them.