Personal loans are a quick way to get fast cash

ARE personal loans a good idea or should you avoid them at all costs?

FINDING a significant chunk of cash to pay for a large purchase like a car, overseas getaway or home renovation can be difficult and often result in consumers resorting to credit.

But personal loans often attract much lower interest rates and have structured repayment requirements that customers must stick to.

Analysis by financial comparison website InfoChoice shows there are three types of personal loans:

1. Secured personal loans: where an asset, a car for example, can be repossessed if the repayments aren’t met.

2. Unsecured personal loans: these are common for purchases but because there is no security for the loan they usually attract higher interest rates.

3. Line-of-credit: These are less common and ususally for people with high incomes, they can for example be an overdraft on a bank account.

The site’s spokeswoman Laura Crowden says there’s plenty of choice for customers looking for a competitive personal loan so it pays to do plenty of research first.

Laura Crowden says personal loans are generally a cheaper option than credit cards.

“Personal loans are a really good alternative to simply putting a large purchase such as a washing machine or second hand car on your credit card,’’ she says.

“Generally a personal loan will provide a much lower interest rate than your credit card because you’ll have to repay the debt within an agreed time frame.”

But be aware of set-up fees which are usually around $150.

InfoChoice figures shows on a $10,000 two-year personal loan the average interest rate is 12.14 per and the monthly repayments are about $471.

By comparison, credit card rates are often around the 20 per cent mark.

Peer-to-peer or marketplace lenders such as Society One are also worth exploring as an alternative to banks and credit unions as they can offer even sharper deals.

Front Row Financial director Brendan Turnbull says there may be “wiggle room” with lenders on the loan deal you strike.

“You find this after you have set the loan up if you, for example, have an existing personal loan and you’re looking to refinance it somewhere with a cheaper interest rate, the bank you’re with might go into retention mode,’’ he says.

“But if the only choice you have is between a credit card and a personal loan, you would always go with a personal loan.

“The reason banks offer cheaper interest rates with personal loans is because there is an end date.”

Originally published as Personal loans are a quick way to get fast cash