There are many types of loans available in the Australian market. Understanding each type and its benefits will help you choose wisely. Here are the main characteristics of the most popular types of loans:
These are loans that can be applied for and approved instantly. Lenders offer same-day services. You can apply for the loan and get the cash within 24 hours. The loan is granted against your paycheck. This means you should have a verifiable source of income such as a job, pension, or regular benefits.
Who can apply for a payday loan?
Australian citizens, including immigrants and tourists who are in the country legally.
Here are the requirements.
- Be over 18 years old.
- Have a valid identification document such as a passport, national ID, driver’s license, or any other relevant document.
- Have a regular source of income.
- Have a bank account.
You might also be required to provide a recent bank statement. Key to note is that these loans are payable on your next payday. They are also available to people with bad credit history and some are offered without a credit check. No collateral is required when applying for a payday loan.
What type of loan are personal loans? Payday loans fall into this category but not all personal loans can be termed as payday or cash loans. Personal loan repayment periods can be extended to a few months depending on the lender.
You do not require a collateral when applying for a personal loan. In addition to this, you can still qualify for the loan even with a bad credit history. Most lenders might only want to verify your current source of income to determine whether you will be able to pay back the loan and the interest accrued.
When Should You Apply for a Personal Loan?
- Emergencies – These include sicknesses or sudden issues such as a car, home appliance, or machine breaking down. If it is something you cannot do without or an issue that cannot be ignored until you get paid, a personal loan might be an ideal choice. It is fast and convenient.
- To Pay Bills – Due to some unplanned expenses, you might end up without enough cash to pay all the bills. Some bills should be paid on time to avoid penalties or service termination. A personal loan can be handy in putting things back on track.
- To Boost a Personal Business – When starting out, many small businesses do not have enough cash to circulate. This is due to delayed payments or not having enough capital. Sometimes, demand might be higher than the money you have to cater for the supplies. A personal loan can help you acquire fast cash to keep you in business.
- To Cash in on Offers – These might include discounts on cars or home appliances. If you can benefit from the discount, a personal loan can help you buy the item on time which will translate to more savings.
These are loans which repayments are made in parts for longer than a month. Once you borrow the money, the lender lets you know the amount of money you will be paying on a monthly basis including the interest charged. Installment loans are convenient for those who borrow large amounts of money. Mortgage, car, and some personal loans fall into this category. Note, installment loans require a collateral.
A lender can agree to offer a guaranteed payday loan which repayment term might be of up to 12 months. For smaller payday loan amounts, paying in installments might be more expensive than paying it all at once. It is important that you do your calculations right before you agree to pay the loan in installments.
What are the Requirements for an Installment Loan?
- The collateral depends on the value of the loan applied for.
- You must be over 18 years old and employed or with a regular source of income.
- You should provide evidence of how long you have been in your current job.
- A recent bank statement – of 3 to 6 months.
- Be a citizen or live legally in the country.
- Have a good credit history. This though might be overlooked by payday lenders. Banks and credit unions will take your credit history into account before granting the loan.
These are loans which repayment periods are between 14 days and 12 months. Most payday loans are under this category. The amount granted for short-term loans is usually lower, up to $2000 while that of installment loans can be higher. Key things to note are:
- Short-term loans in most cases are granted on the same, however, this might not be the case for banks and other financial institutions other than payday lenders.
- They are high-interest loans because of the short loan repayment period.
- Most do not require a collateral.
- They are easy to apply for. They have fewer requirements.
- No penalties for early loan repayments.
- They can also be acquired by those with a bad credit history.
- They are also personal loans.
Due Diligence When Applying for any Type of Loan
It is easy to access any loan facility nowadays. This can result in a life of debt. Here are some things to consider before applying for all types of loans:
Consider whether you actually need the loan – Some needs might be delayed until a suitable time in the future when you have money.
How much you should borrow – Do not borrow more than you require just because the loan acquisition process is easy.
Do not borrow to cover up another loan – This will eventually become a debt cycle. When you cannot pay up a loan on time, it is important that you notify the lender and come up with new and convenient repayment options. It is also advisable that you seek advice from a reputable financial agency.
All loans affect and reflect on your credit history. Future lenders, especially banks, might use the credit score to qualify loans you apply for.