The current COVID-19 situation has caused many people to experience unexpected financial stress. While we are starting to see the light at the end of the tunnel with restrictions easing, some have taken this opportunity to reassess their own financial situation and get on top of their debt – kudos to you if you’re here doing your research!
Part of reflecting on your financial situation involves evaluating your past decisions and figuring out how to do better when considering your next goals. Especially when surprise expenses arise, rather than taking on more credit cards or overdrafts (which can lead to an unhealthy cycle of debt), a personal loan may help fill some of the gaps or allow you to consolidate multiple debts.
At Wisr, we also offer personal loans and are committed to helping Aussies get a fair go. COVID-19 has affected us like everyone else, so we thought we'd share some insights about personal loans if you’re in need of extra funds.
Is a personal loan a good idea?
A personal loan may be helpful when it’s used to further or improve your financial position, consolidate your debt or help you reach specific goals. You should feel comfortable and in a secure position to meet regular repayments without feeling burdened by them.
Even during a crisis, personal loans may be able to help you, but it is important to evaluate your own situation carefully. Because personal loans can be used for a range of worthwhile purposes – including unexpected expenses like dental costs or tax bills for example, you might consider a personal loan with a rate and monthly repayment you feel comfortable with instead of putting it on the credit card and letting interest pile up.
Some questions to consider include:
1. How are you receiving income at the moment or in the near future?
- When doing your research on loans, keep your own financial situation in mind to ensure you can manage the repayments and find a loan structure that best suits your needs.
- As secure income is an important factor in application approval, if you are experiencing decreased income or loss of income due to the current situation, you may want to consider your capacity to service a loan at this time.
- Prioritise getting back on your feet by seeking government assistance or re-evaluating your expenses. We also put together a few tips on emergency savings you can check-out here.
- Many lenders are offering support to customers so it never hurts to reach out to answer your questions and see how they can help you.
2. What loan term suits you best?
- Many lenders offer multiple terms for unsecured personal loans, usually 3, 5 and 7 years, and allow you to choose which best suits you.
- If you wish to pay down your loan faster, be aware that some lenders charge early repayment fees or don’t allow for extra repayments so it’s wise to do your research before applying.
Will I qualify for a personal loan?
Some lenders may have updated their lending policies during the current COVID-19 pandemic. This means lenders have revised their lending rules by potentially tightening credit scores and income requirements to ensure situations do not become unmanageable for customers. Although this may make it harder for some people to qualify for a loan, it is best to reach out to lenders directly for more information as they want to see you get through this with as little stress as possible too.
Doing your research and keeping realistic expectations based on your own financial situation allows you to be more informed when deciding to apply for a loan.
Generally, as one of the first things lenders look at when considering applicants, checking your credit scores provides you with a more realistic perspective of your own situation.
To learn more about credit scores and what constitutes a good score, check out our article on the ins and outs of credit scores here.
Where can I get a loan?
You have a few options when looking for a personal loan.
Banks do not typically personalise their rates, but with the constantly changing economic conditions, it’s wise to stay up-to-date with changing interest rates and policies.
Alternative (non-bank) lenders
Alternative lenders are usually fully online and offer personalised rates and a convenient way to borrow. If you’re receiving a steady income and have a strong credit score, you’re likely to score yourself a better deal. The emergence of alternative lenders puts pressure on the banks and ideally will help Aussies access better, more competitive interest rates. Wisr falls into this category as Australia’s first non-bank ‘neo-lender’.
Payday lenders offer ‘fast cash’ or small, short-term unsecured loans which may be a quick fix, but these tend to come with high interest rates or fees and have the potential to give your credit score a beating if you don’t make your repayments on time. Learn more about red flags to watch-out for when considering a loan here.
If you are shopping around with different lenders, be aware that submitting multiple applications may impact your credit scores and could impact the final rate you receive.
Many lenders including Wisr are offering assistance to those impacted by COVID-19 through reduced repayments or payment pauses. If you are impacted, it’s best to reach out to providers to find out more about these types of arrangements.
Can I have more than one loan?
While having multiple loans at once can be manageable for some, it's best to look at your own financial capacity. One of the many factors lenders may consider is your current total debt to income ratio, along with your ability to meet the repayments of all these debts.
With so much uncertainty around us, now may be the right time to reassess your finances and get in control of your financial decisions.